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IPE special report May 2018

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Swiss government proposes pensions reform

SWITZERLAND – The Swiss federal social security office, the Bundesamt fuer Sozialversicherungen, is recommending a soft and long-term cure for the problems at Swiss pension funds.

Swiss pension funds are estimated to be underfunded by 10% on average – around 50 billion Swiss francs (35 billion euros). But because of different methods and a lack of statistics, such figures are only rough estimates.

According to Margareta Meile of the BSV, the BSV will now impose the so-called “Zuercher Formel” to calculate the coverage ratio. This formula defines the coverage ratio as the percentage of net assets divided by reserved capital. A pension scheme is deemed to be seriously underfunded and has to take financial measures when the coverage ratio falls below 90%.

Such funds will be allowed to reduce payments to pensions, with reductions in proportion to the increase of old age pensions seen during the boom period. Because of its political implications, these measures are bound to be controversial. Legally, payouts are fixed and granted at the moment of retirement.

Measures also include higher contributions by employers and employees. Employers will have to contribute at least half of recover-payments. In addition, employers are encouraged for voluntary advancements. After a scheme has recovered, such pay-ins will be accounted against their regular payments.

Seriously underfunded schemes will also be exempted from the legal minimal interest to be paid on the lump sum and may pay zero interest.

The BSV outlined that all measures should be “symmetrically distributed” to active members, pensioners and employers. Participants, including employers that profited most from contribution holidays, shall sacrifice according to former gains.

Usually schemes will be given up to five years to recover. If this timeframe creates hardship for members or pensioners - or if the recovery plan presupposes too high returns on investments - the period to recover can be extended up to 10 years. The measures become effective in the first quarter of next year.

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