SWITZERLAND - The CHF1.5bn (€1bn) Schaffhausen Pensionskasse is battling a 10.5 percentage point drop in its funding level.

The current funding level of the canton fund - based in the north of Switzerland - is 86.89% after the financial crisis presented financial problems.

At the end of 2006, the pensionskasse had reached full funding but one year later it was back down at 97.35%. (See earlier IPE article: Swiss pension reaches full funding)

In 2008, however, the pensionskasse lost CHF138m on its investments, according to a statement issued to precede publication of next week's annual report.

The fund did react quickly to developments and both employers and employees who are members of the fund have had to pay higher contributions since the start of this year.

Employees saw a 1% increase in contributions while employers' premiums were raised by 1.5%, said Robert Egli, head of the pensionskasse.

Other funds, like the CHF4.3bn pensionskasse for the canton of Luzern (LUPK) are still debating measures to get back to full funding.

The fund is currently only 91.9% funded, down from 105.6% a year ago as it reported a performance loss of -10.3% in 2008. (See earlier IPE story: Luzern pensionskasse loses 10.3%)

The LUPK noted said in its annual report that it will aim to get recovery measures cleared by members and trustees this year so they take effect from January 2010.

In the meantime, the fund's board has set the interest rate for pension benefits for 2009 at the legal minimum of 2% (after 2.5% in 2008) and decided not to grant indexation on pension payouts for this year.

The 18,626-member fund is aiming to achieve a 4% return on investments for 2009.

The financial crisis has left the pensionskasse with an 18% equity holding after the board decided to cease rebalancing in last quarter of 2008.

While the fund increased its exposure to private equity over the last year, the hedge fund portfolio dropped in value from 6% share of total investments to 5.4% through negative returns.

The LUPK noted it had invested CHF35m in some "interesting development and building projects" in the domestic real estate market but only expects positive returns from these in the following months.

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