The managing board of Aargauische Pensionskasse (APK), the CHF11.6bn (€10.6bn) Swiss pension fund for the employees of the Aargau canton, has designed a climate strategy to hedge the fund against risks caused by climate change.
The climate strategy for the entire equity portfolio kicks in this year. APK will aim to reduce climate risks “efficiently [and] cost-effectively” with a particular focus on equities.
The strategy will also include three other additional pillars: commitment to increase dialogue with invested companies, aim to reduce risks generated by a deviation from capital market indices; and conduct an annual assessment of the impact of its climate strategy on investments.
Measuring the impact of its climate strategy on investments may lead to a change of its investment strategy if necessary, it said.
APK had to navigate a “very volatile” year for investments in 2020, it said, adding that it expects a funding ratio above 100%. Its funding ratio in 2019 was 104.9%.
The pension fund’s executive board decided to set the interest rate for 2021 at 1%, based on coverage ratio outlook and earnings. The Swiss government’s fixed interest rate stood at 1% for this year despite the crisis.
Joseph Steiger, deputy head of department at the Federal Social Insurance (FSIO), told IPE the interest rate remains unchanged year-on-year for 2021 “because the situation [in 2020] has been quite stable, even though at times with a certain volatility.”
The minimum interest rate level is defined by the progress of returns on bonds, equities and real estate.
The federal commission for occupational pensions, BVG-Kommission, had instead recommended a lower minimum interest rate for occupational pensions in 2021 from the current 1% to 0.75%.
Eligible insured at APK will receive an additional credit on savings of 0.83% in 2021. APK, however, from 2022 will decrease the conversion rate used to calculate the pension pay-out at time of retirement from 5.3% to 5%.
APK has reviewed the conversion rate in light of increasing life expectancy and low interest rates.