Aargauische Pensionskasse (APK), the Swiss pension fund for the employees of the Aargau canton, has decided to apply the minimum interest rate on pension savings this year.
The pension fund explained that 2023 was a “very volatile” year, expecting its funding ratio to hit 100%.
Due to the current funding ratio, APK’s board has decided to pay the minimum interest rate for occupational pensions set by the Federal Council of 1.25% on members’ savings in 2024. The scheme recorded an underfunding in 2022 and it is not yet clear if it has fully recovered.
Last year, APK also applied the minimum interest rate on pension savings of 1%.
Pension scheme members will receive a further interest rate payment of 0.6% for the years 2024-26 to cushion measures for the reduction in the conversion rate used to calculate pension payouts to 5%, it said.
This interest will be financed from provisions set aside in 2021, resulting in a total interest rate on pension savings for 2024 of 1.85%, the scheme added in a statement.
APK recorded 0.71% returns as of October last year, above its 0.64% benchmark. It started the year positively with 2.30% and 1.13% returns in the first and second quarter, respectively, but the performance turned negative during the last two quarters of 2023 at -1.20% and -1.47%, according to a UBS management summary of the pension scheme.
Swiss pension funds are opting to increase interest rates on members’ pension savings, a sign that returns and the overall financial situation of pension schemes has improved over the past year.
Pension funds, instead, are likely to decide to not increase pensions in line with inflation, as in the case of the pension fund for the city of Zurich (PKZH).
As per the board’s decision, APK is keeping the current level of pensions unchanged this year.
APK said it annually assesses whether to adjust pensions to price developments, taking into account the financial environment, and as long as it holds enough fluctuation reserves to fend off market volatility.