SWITZERLAND - The finance department for the Swiss canton of Basel-Land is considering a loan to regional public pension fund BLPK in an effort to boost its investments as part of a recovery plan.
The CHF5bn (€3.9bn) fund returned 1.89% over the first seven months of 2010, which would not significantly impact its funding level, which stood at 78.8% in December 2009.
BLPK faces a CHF1.3bn shortfall, with a commission set to decide recovery measures as well as a possible switch to a defined contribution system early next year.
Meanwhile, industry representatives have until November to submit statements on both issues, the regional financial department noted in a report.
Basel-Land's finance department said: "The financial commission has mulled the idea of granting the Pensionskasse a loan for investment purposes as the BLPK is lacking means to achieve a better performance because of its underfunding."
As per year-end 2009, the BLPK had invested roughly 32% in equities - 22% foreign and 10% domestic - nearly 50% of assets are equally split between foreign and domestic bonds, with a further 17% invested in Swiss real estate.
The rest of the portfolio is in private equity (2%), hedge funds (0.9%), commodities (1.4%) and foreign real estate (2.3%) - with 50% of the foreign currency exposure in the total portfolio being hedged.
"As the BLPK has to achieve a return between 5% and 6% p.a. it cannot invest risk-free and has to stick to its current strategy," the finance department explained.
However, it was also noted that thanks to a favourable member structure - the active/retired ratio is 3:1 - the Pensionskasse will not have any problems making pension payments in the near future.
Over the past few years, the funding status of public pension funds has been a contentious issue in Switzerland, with some people arguing an 80% funding level is adequate.
Some believe this sufficient as the funds enjoy employer guarantees and a steady inflow of members, as well as increasing contributions.