Switzerland’s BVK, the pension fund for employees of the canton of Zurich, may see recent changes to technical parameters scrutinised by the local regulator after civil servants’ union VPOD said it was considering a complaint.
In an open letter, the union has criticised the BVK for the “radical” changes to come into effect from 2017 which “endanger the level of pension [payments] put down in the pension funds’ founding document”.
However, in a response sent to IPE, the BVK stressed the cuts has been approved by the trustee board which was “equally comprised of representatives of employers and employees”.
A BVK spokesman noted the changes have been explained to the members and that they were “understanding the decision with hardly any criticism being voiced”.
In July, the CHF28bn (€23bn) pension fund covering 470 employers and 114,000 employees and pensioners in total, had decided on various measures to come into effect from 2017.
It pointed out those were necessary to “stop the current transfer of assets from active members to pensioners” which amounted to CHF450m last year.
The discount rate applied to active members’ assets (“technischer Zins”) will be cut from 3.25% to 2%, which automatically leads to a cut in conversion rates.
From 2017, a man retiring at 65 would be subject to a conversion rate of 4.82% – applied to calculate a life-long pension from his assets – whereas currently a rate of 6.20% is applied.
In order to maintain their current pension payments in retirement, employers and employees would have to make additional contributions with the BVK considering compensation measures for the transition phase.
Further, the fund would switch from periodic tables to generation tables to calculate longevity as the latter provided ”a more meaningful comparison”, the fund noted in a press release.
The fund explained the timing was necessary as “from 2017 the baby boomers will retire”, which will put further pressure on the financing of the BVK.
But the union argued the additional financing, at least some of it, should have come from the canton rather than an increase in contributions and a cut in pension promises.
According to the VPOD the announced changes are the BVK “cowtowing to the canton”.
In the July meeting, the board of trustees also decided not to directly file any lawsuits against the canton of Zurich regarding the corruption scandal around the year 2008.
At the time, the BVK was still run by the cantonal authorities but the pension fund noted various expert assessments did not yield any definite damage sum for wrongful investment decisions made during those years.
Therefore, the BVK has now come to an out-of-court agreement with various financial service providers.
In a statement, the pension fund stressed these decisions were aimed at “closing the chapter” on the corruption scandal.