SWITZERLAND - The Swiss first pillar fund AHV saw its return fall to 0.4% last year compared to 6.8% in 2006.

The fund's investment return result shrank to CHF8m (€5m) from CHF1bn in 2006, alongside returns of 9.6% and 6.7% for 2005 and 2004 respectively.

"The positive result from the first half of 2007 was almost compensated by losses in the second half,"  the Swiss federal ministry for social affairs noted in the AHV's preliminary results.

"We were not invested in any asset classes directly affected by the subprime crisis," Marco Netzer, president of the AHV, explained to IPE.

Losses were incurred by the general downturn on the global equity markets but "commodities helped our performance," he added.

Positive economic development in Switzerland meant contributions to the fund rose by 5% along with wages and helped the AHV to sustain a CHF1.5bn surplus.

Similarly, the fund's inflow from its share of VAT and other taxes increased by 3.7%.

The fund's expenditures rose by 5.1% because of demographic changes and a 2.8% increase of the paid-out pensions.

Over the last year, the fund had inflows of CHF34.5bn and outflows of CHF33.3bn compared to CHF32.9bn and CHF31.7bn respectively the year before.

The Swiss parliament is currently debating an amendment to the legislation on the AHV fund but main points of conflict between the parties - which have been struggling to come to a agreeent on the revision since 2005 - are an increase on women's retirement age by one year to match that of men at 65.

So far, there has also been no agreement on the wider flexibility of the state retirement age, which would allow people to retire between the ages of 62 and 70 as well as consider additional means of financing for the fund.

The Christian Democrats CVP issued a statement in which they urged all parties to find a compromise as soon as possible.

"A solution must not be deferred any further as the financial situation of the AHV is deteriorating," said party spokesman Urs Schwaller.

The next parliamentary session on the issue will take place on Monday.

Netzer confirmed an amendment to the AHV legislation is necessary because of demographic changes but how the problem of financing pensions is resolved is a political question.

However, as a Swiss citizen he would rather  see "a good solution either today or in a year than a bad one tomorrow".

"In a few years' time, our outflows will exceed our inflows but at the moment we are still reporting positive results," Netzer said.

Netzer, who is on the supervisory board of Swiss bank Cramer & Cie SA in Geneva, took over as president of the AHV from Ulrich Grete last November.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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