SWITZERLAND - Switzerland's new top supervisory body (OAK) has issued its first major regulatory edicts, tackling the long-debated issues of the interest paid by pension funds and funding levels at public schemes.

On the matter of lowering interest on members' assets in fully funded pension funds, the OAK has decided against a legal decision upheld by cantonal supervisors. 

Under current Swiss law, underfunded pension funds have been able to suspend the interest paid on members' assets or lower them below the legal minimum rate.

But the OAK has ruled that the BVG's legal framework did not support restrictions against funded Pensionskassen managing above-mandatory contributions.

It said funded schemes "in danger of becoming underfunded" or "facing negative returns" would also be able to lower the interest on contributions, so long as it guaranteed the minimum interest required in the mandatory part of the scheme.

The supervisor warned that the measure should not be used lightly, and said that this lowering of interest on one part of assets must not be used to recover structurally underfunded schemes.

It said it would forego setting "certain specific limits", which it said would be "hardly possible" due to the diversity of pension funds' membership, technical provisions and other parameters.

"It will remain the challenging task for the board of trustees to find an adequate solution and a not less challenging task for the supervisory bodies to decide case-by-case whether the board of trustees has used its discretion responsibly or whether it has exceeded it," it added.

The supervisor also addressed the long-debated issue of funding at public Pensionskassen.

The OAK confirmed that new legal provisions that came into effect earlier this year did not require pension funds to be fully funded by 2013.

Instead, like any other privately run Pensionskasse, public funds will have to put in place recovery measures to achieve full funding - ideally within 5-7 years, and no more than 10 years.

Any public pension fund choosing to remain partially funded - with the canton or the city offering guarantees - will have to get individual approval from the supervisory bodies.

The OAK stressed that, from now on, the guarantees offered by public authorities on their pension funds would only expire once "sufficient buffers" had been built in the fund.

To date, guarantees have been lifted when the funding level drops to 100%, which has increased the number of underfunded Pensionskassen, particularly during the financial crisis.

Again, the supervisory body declined to set a fixed level for the necessary buffers.