SWITZERLAND - Members of the Swiss BVK have demanded compensation from the beleaguered pension fund, blaming its current underfunded position on a "misguided" contribution policy.

In 1998, the canton of Zurich decided to lower contributions to the BVK - the fund for the canton's employees - to take pressure off both employers and employees.

However, when the dotcom bubble burst, this policy led to an underfunding that is still evident today.

Since 2008, the funding level has remained below 90%, making recovery measures a legal requirement. 

The regional government has presented measures to deal with the BVK's underfunding, but employer representatives said they did not want to have to pay for past mistakes.

The canton noted in a press release that the contribution reduction 10 years ago had been made by consensus between the canton and employees, who at the time criticised the government for not having taken the step sooner.

"This demand for compensation," the canton concluded, "is pointless."

As part of the recovery measures, the discount rate will be lowered from 4% to 3.25%.

Contributions will be raised to pre-2000 levels, amounting to an increase of 2 percentage points, 60% of which will be covered by the employer.

As long as the funding level remains between 80% and 90%, employers will have to pay extra contributions of 3.75% and employees an additional 1.5% while the interest paid on assets is cut by 0.5%.

Once the fund has reached a full funding level, interest will be paid in full.

Should the BVK reach a 115% funding level, pension payouts will be increased as well.

The conversion rate will also be adjusted as, according to the canton's estimates, CHF90m (€67m) of active members' contributions per year are going toward retired members' pensions.

Employees and other interested parties have until year-end to comment on the suggested measures, which are to be passed next year and come into effect from 2012.

The canton stressed that the underfunding of the BVK was unrelated to the allegations of corruption brought forward against the fund's former head of asset management, Daniel Gloor, who remains in custody.