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Swiss guaranteed minimum interest rate could fall

SWITZERLAND – The Swiss president has said the guaranteed minimum interest rate of 3.25% may be lowered further.

Pascal Couchepin, who is also home affairs minister, said in a newspaper interview that he was “not ruling out” a further reduction to the guaranteed minimum interest rate, but added that it would “depend on investment returns and economic developments”.

Just how low the rate can go would also depend on the long-term economic outlook. When the rate was lowered from 4% last year, 3% was bandied about before a rate of 3.25% was chosen. Now, industry representatives are suggesting 2.5%. Couchepin stated, however, that it would be decided at the end of the year.

A further option, which has received approval from consultants and experts, is the creation of a variable guaranteed minimum interest rate.

Switzerland’s pension funds are, like their European counterparts, in a difficult situation. Estimates that 30% to 50% of Swiss second pillar schemes are underfunded are causing alarm, but Couchepin says there is no need to panic. “Underfunding does not mean insolvency,” he told Sonntags Zeitung. He described the current situation as an “economic phenomenon”.

The Swiss government is carrying out a commissioned review of the second pillar system over the next two years.

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