With a slim majority, the Swiss government’s occupational pensions expert body has recommended its minimum interest rate be kept at 1% for 2020.

The Mindestzinssatz is the minimum interest rate that every pension fund in Switzerland has to grant annually on active members’ accrued savings based on mandatory contributions.

According to a statement from the BVG-Kommission, the politically appointed body of occupational pension stakeholders, its members had made suggestions for the rate ranging from 0.25% to 1%, and different versions were voted on.

Both its formulas – the basis for its annual recommendation – had produced a lower value than 1%, but other factors were considered.

These included the rate’s affordability for pension providers given the investment returns they could achieve. The BVG-Kommission also noted that the rate “should strengthen trust in the second pillar”.

The president of the commission told IPE it had considered the latest public annual report from the federal pensions regulator, which showed that funding levels had improved since the beginning of the year and that it could therefore “answer for 1%”.

The government decides on any changes to the minimum interest rate. Last year it decided to keep it unchanged at 1% despite the BVG-Kommission having recommended 0.75%. That was the first time the government went against the expert body’s recommendation. 

Pension fund body urges ‘depoliticisation’ 

Asip, the Swiss occupational pension fund association, called for the rate for 2020 to be set at 0.5%, and for a review of the process for setting the rate and the variables in the main formula.   

“The parameters in the [occupational pensions law] have to be depoliticised,” it said in a statement. “This would allow the parameters to be based on objective models or calculation methods that can be made sense of.”

It noted that as at July, both the old and new formulas used by the expert commission produced results between 0.5% and 0.6%.

Although the BVG-Kommission took into account other factors, the basis for the rate must be the current rate environment, said Asip. This had fallen even further than last year, it added.

Switzerland’s main employer association and the insurance industry body strongly criticised the BVG-Kommission’s recommendation, and called for the rate to be set at 0.5% and 0.25%, respectively.

The main trade union welcomed the recommendation, saying that pension funds were in a situation that allowed a 1% minimum “despite the economic uncertainty”.

Pension funds are free to apply a higher rate if they are able to.

Last year the expert commission voted to adjust the formula that forms the basis of its discussions, increasing the weight of equities and real estate and dropping a long-term smoothing of government bond yields in favour of the current rate of the 10-year sovereign bond.