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Swiss funds underestimate under-funding - IMF

SWITZERLAND - The International Monetary Fund has said the Swiss second pillar underestimates its level of under-funding.

The IMF said that although the conversion rates used to calculate annual benefit on retirement have been reduced they “remain too high” in the mandatory segment. This thereby has the effect of “underestimating the amount of under funding in the second pillar”.

But the IMF praised the Federal Council’s decision to increase the minimum interest rate from 2.25% to 2.5% “even though effective market returns on invested assets remain low”.

It also recommended more “analytical formulas” in the setting of parameters. “Supervision should be strengthened by introducing harmonised standards across cantons and by shifting from regulatory to actuarial assessments,” it said.

The fund also criticised the use of the CHF21bn (€13.6bn) from the Swiss National Bank’s sale of 1,300 tons of gold following the removal of the gold peg in 2000.

Last December the upper chamber of parliament voted to transfer two thirds of the proceeds to cantons giving the state the remaining share - leaving the first pillar scheme AHV empty-handed.

“The proceeds from SNB gold sales are one-time flows and should be used to reduce debt,” the IMF said.

“The sales are not a permanent source of income and therefore should be not used for expenditure. This would postpone reforms and make future corrections more painful.”

Last week Swiss pension fund association ASIP and Watson Wyatt said schemes had a "barely acceptable" 4.2% return in 2004 – and that they had no reason to relax.

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