Switzerland’s government has announced it is lowering the minimum guaranteed interest rate for occupational pensions from 4% to 3% from the beginning of October.
The government was expected to make a decision in October and enforce it at the beginning of the year but it maintains the poor state of capital markets has forced bringing the decision forward.
It does not expect the same level of returns during the 1990s either in the short of medium term and says a prolonged bear market has led to the depletion of reserves.
Cutting the rate one point is not a decision set in stone. Switzerland’s Federal Commission will monitor the minimum interest rate regularly and the government says this will allow it to raise or lower the level accordingly.
Insurance groups have welcomed the decision which comes a month after Credit Suisse was forced to inject SFr1.7bn (e1.2bn) into its Winterthur Life Insurance group to alleviate the effect of falling stock markets.
Following the announcement, shares in Swiss Life rose 15% while those of rival insurer Baloise rose 5%.
A cut has been on the cards for some time but workers maintain the insurance industry’s lobby muscle has won out over concern about the level of guaranteed pensions.
Pension funds, typically with greater reserves have long maintained they can afford the guarantee by using excess returns set aside from more bountiful years. Insurers have meanwhile claimed the guarantee was excessive and have lobbied the government heavily.
SGB, the confederation of Swiss trade unions, has reacted angrily to the decision which it calls “scandalous”. It maintains the Federal Council is behaving like the executive arm of the insurance industry and that the move means pensioners will lose a quarter of the yield on their pensions.
Colette Nova, general secretary of the SGB, says the decision ignores the Department of Social Security’s ongoing investigation of the situation.
“This rash decision in favour of the insurers raises the suspicion the insurance lobby did not want to wait for the results of the department’s work because it was afraid their results,” she says.