Several Swiss associations and a workers union have criticised the decision of the Federal Council to increase the minimum interest rate on pension savings to 1.25% from January next year, from 1% this year.
The Swiss Employers’ Association considers the increase unjustified due to the current financial situation. The association expects further corrections in financial markets, with a gloomy mood persisting at the beginning of 2024 due to the political and economic environment, it said in a statement.
Swiss employers expect a recovery in the last part of 2024 at the earliest, therefore, based on the current situation, the minimum interest rate should have been well below the limit of 1%.
Pension funds will face challenges to fund occupational pension benefits, particularly with regard to the mandatory part of the second pillar pension system – meaning wages of between CHF22,050 and CHF88,200 per year. The minimum interest rate applies to the mandatory part of the second pillar system.
Moreover, the association added, the formula used to calculate the rate results in a lower minimum interest rate for 2024. The calculation of the minimum interest rate takes into account returns on investments in bonds, equities, and real estate.
The interest rate set for the upcoming years is derived from investment returns, based on a formula determined by the federal commission for occupational pensions, BVG-Kommission, in 2018.
As of the end of July 2023, the formula pointed at a 0.54% minimum rate, significantly below the previous minimum interest rate of 1.0%, said the insurance association ASA/SVV.
“Adding 0.7 percentage points [to 0.54%] is not justified,” said ASA/SVV’s director Urs Arbter. “It is a decision that does not take into account the situation of the pension funds due to the existing regulatory and economic framework.”
Particularly multi-employer pension funds, already impacted by a high conversion rate to pay pensions (Umwandklugssatz), rely on a realistic interest rate.
“[Therefore] the increase of the minimum interest rate makes the reform of the second pillar, in particular the reduction of the conversion rate, even more urgent,” Arbter added.
ASA/SVV supports the reform of the second pillar pension system approved by the Parliament last year that will face the public vote in a referendum next year.
The Swiss Federation of Trade Unions, SGB USS, is also unhappy will the government’s decision, calling for a minimum interest rate of 2%.