The Swiss pension fund industry is expecting the occupational pension supervisory commission – OAK BV – to amend the definition of improved benefits given in a note sent out in September.
According to OAK BV’s new definition, improved benefits mean interest rates on retirement assets of active members higher than the weighted average technical interest rates published in OAK BV’s report on the financial situation of pension institutions in May every year, rounded to a quarter of a per cent.
The note triggered harsh criticism that led the regulator to invite inter-pension, ASIP, PK Netz and SKPE for an exchange of ideas on the topic.
Inter-pension, which represents the interests of multi-employer schemes, will try to find a compromise to amend or replace outright the mechanism laid out by the regulator, managing director Nico Fiore told IPE.
The definition creates false incentives to determine technical interest rates and the target values of the fluctuation reserves, he added.
“Determining the interest rate on the basis of a weighted average of the technical interest rates used, does not make sense. Especially in the current inflationary environment, the time delay – data based on 2022 for 2024 interest rates – can have unintended consequences,” Fiore said.
The new formula would also lead to disadvantages for active members of pension funds, compared with retirees, making it hard to compensate for inflation, and meddling into pension funds’ internal business, he added.
Inter-pension also hopes to improve the collaboration between associations and OAK BV, demanding to be involved at an early stage in future discussions on clarifications or overhaul of regulations.
The chamber of the pension fund experts (SKPE) will bring its own ideas to the table, hoping that OAK BV will listen.
“The new definition of improved benefits is too restrictive. We think that the solution applied so far [according to note M-01/2021 OAK BV] is good. We can speak about the details, but in principle we think that the solution is ok,” André Tapernoux, SKPE’s management board member, told IPE.
According to the note M-01/2021, improved benefits mean an interest rate higher than the upper limit to define the technical internet rate according to guidelines FRP 4 laid out in 2019. The upper limit was 3.6%.
OAK BV explained that an interest rate of up to 3.63% can’t be considered an improvement, under the old rules, in the new environment of higher interest rates.
It would allow pension funds to pay interest on their retirement savings at a rate well above the minimum set by the government (1.25%), even in the event of challenging financial situations, therefore rules need an update, it added.
PK Netz, another association invited by the regulator, also hopes that OAK BV will revise the latest definition. “We have a few problems with terminology,” president Jorge Serra said.