Swiss public pension funds have welcomed changes to the occupational pension law that give them greater freedom to define benefits, attract new members and improve their financial position.
Last week, the National Council – the lower house of the Swiss parliament – approved a motion to amend the law, allowing public pension funds to increase benefits even if their fluctuation reserves, set aside to absorb market volatility, are low.
The motion, put forward by Erich Ettlin, member of parliament (MP) for the Centre party (Die Mitte), was narrowly passed with 97 votes in favour and 94 against. It aims to restore competition between private and public pension funds, enabling the latter to boost membership by offering higher benefits.
St.Gallen Pensionskasse (SGPK), the CHF12.4bn scheme for employees of the canton of St Gallen, welcomed the move.
In a statement, SGPK said the change eliminates unequal treatment among pension funds and considers the fact that public pension funds generally don’t compete fairly.
The fund currently holds CHF1.2bn (€1.3bn) in fluctuation reserves and follows a restructuring process in the event of underfunding, with pensioners required to participate.
The mechanism underpins the board’s annual decision on interest on savings, which can now be applied without restrictions, it added.
Emmanuel Ullmann, chief executive officer of the CHF6.5bn Pensionskasse Kanton Solothurn (PKSO), also said the legal changes give the governing body of a public pension fund greater freedom in setting interest rates on savings.
“Public pension funds often pursue a benefit target that requires a fixed interest rate. If these interest rates could no longer be granted due to regulatory restrictions, contributions would have to be increased, which is not in the interests of employees and the public sector,” he told IPE.
He added that restrictions under the previous law may have impacted performance targets or interest-bearing policy.
“However, in my view, it is unlikely that removing this restriction will have a significant impact on the investment strategy,” Ullmann noted.
Martin Bieri, managing director of the pension fund of the canton of Schwyz, also considers the reform positive for public schemes with clearly defined benefits above current statutory provisions.
“I expect that, as a result of this change, the target size of the fluctuation reserves is adjusted. I don’t expect an impact on the strategies,” he told IPE.
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