SWITZERLAND – The Swiss government has approved a law transforming Publica, the CHF30bn (€19.3bn) pension fund for public sector employees, from a defined benefit to defined contribution from the start of 2008.

Under the law, Publica will no longer provide a corporate pension for its 40,000 active members on the basis of previous salary but according to how much was paid into the scheme. The law also raises the age for the maximum pension benefit to 65 from 62 currently.

The law still requires the approval of the Swiss parliament to take effect.

CHF17bn of scheme assets has been earmarked to fund pensions for current public sector retirees, including those from privatised companies like Swisscom, a telecoms operator.

Publica said that because these pensions represented a significant burden on its finances, the CHF17bn would be removed from the scheme and put into a separate fund. The government is to guarantee the pensions paid from this fund.

The move will shrink Publica’s assets to CHF13bn. The fund also plans to reduce its Rechnungszins – a figure used to calculate how future pension obligations can be met – to 3.5% from 4% currently. The current return for the fund is 4.9%.

Publica said the reduction of its Rechnungszins would cost it CHF1bn, which it would partly collect by increasing its insurance premium.

Currently, Publica takes in CHF700m from the premium annually, with the Swiss government providing CHF400m of that and public sector employees the rest.