Swiss pension funds’ financial health could lead the government to set a minimum interest rate on pension savings for 2022 above the 1% recommended by the federal commission for occupational pensions, according to the latter’s president.

The financial situation of the Pensionskassen, particularly their funding ratio, and the markets are moving in a direction so that “I can imagine the cabinet going slightly above 1%”, BVG-Kommission’s president Christine Egerszegi-Obrist told IPE.

She added that pension funds can also independently decide to apply an interest rate on pension savings that is higher than the minimum level.

The BVG Kommission makes a minimum interest rate recommendation by looking at returns on bonds, equities, and real estate. The rate is applied to pension savings accumulated on wages in the range of CHF21,510 (€22,022)-86,040 per year, corresponding to the mandatory part of the occupational pension insurance.

According to figures published by the federal workplace pensions supervisor, OAK BV, returns on equities (14.2%) and alternatives (13.6%) pushed Swiss pension funds’ funding ratios to 119.9% in the first half of this year, up from 113.5% at the end of 2020.

The BVG Kommission has recommended that the minimum interest rate on pensions savings be kept at 1% for 2022, above the 0.75% suggested last year, precisely because “at the moment [the situation on the] markets is very good, and the Pensionskassen are in a very good condition with a funding ratio that hasn’t been this high since 2004,”  said Egerszegi-Obris.

The BVK-Kommission’s recommendation is based on July figures. The Federal Council will decide on the minimum interest rate in the autumn.

Q3 ‘decisive’

“The development in this quarter is decisive,” said Egerszegi-Obrist. “If the trend continues to go up I can imagine that almost certainly the Federal Council will keep the minimum interest rate at least at 1%.”

Last year, the Federal Council also decided to maintain the minimum interest rate at 1%, with a government official having at the time told IPE that this was because the situation was “quite stable, even though at times with a certain volatility”.

Egerszegi-Obrist explained that the BVG-Kommission had chosen 0.75% last year with the consequences of the COVID-19 pandemic in mind.

The pension fund association ASIP has given its support to this year’s recommendation of the BVG-Kommission.

The committee had rightly taken into account pension funds’ financial situation, inflation, wage growth, and the returns targeted by pension institutions to keep a certain level of funding ratio, ASIP said in a statement.

The Swiss Employers’ Association (SAV) had instead campaigned for a “significant reduction” of the minimum interest rate, it said in a statement.

It said it was unclear whether the market bull run of 2021 would continue and that current developments could only help to a certain extent to determine the outlook at the end of next year.

The pressure on pension funds was meanwhile increasing, especially for those facing having to pay pensions for the baby boomer generation, it added.

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