SWITZERLAND - Swiss pension fund association ASIP has made the novel proposal of abolishing the current rate of conversion for occupational pension benefits and instead calculating those benefits according to life expectancy.

The current rate of conversion is 7.1% for male employees and 7.2% for females. This means that a male employee with CHF100,000 (€60,800) in accrued pension savings is entitled to an annual benefit equalling CHF7,100.

But last November, the government approved a cut in the conversion rate to 6.4% for both men and women from 2011. It cited longer life spans for retirees and dwindling capital market returns as the reason for the cut.

Now in a new position paper, ASIP says that for the sake of simplification, Swiss corporate pension law should be amended to abolish the conversion rate completely. Benefits would, in this case, be calculated according to life expectancy.

ASIP also favours getting rid of the guaranteed rate of interest on accrued pension savings, currently at 2.5% per annum. In its place, the lobby suggests crediting the savings with a rate equalling 8% of salary each year.

Another suggested change to current Swiss law is lowering the earnings threshold for mandatory second-pillar contributions to CHF13,260 per annum.

Corporate pension saving would, furthermore, begin at the age of 17, while withdrawals would be taken between the ages of 55 and 70.

Finally, ASIP recommends Swiss pension funds not only maintain a funding ratio of 100% but aim for 130% to weather market turbulence. Some Swiss schemes - notably public ones with government guarantees - have funding ratios below 100%.

While ASIP admitted that its proposals would likely not be adopted, "a practical alternative has been presented which cannot be ignored and which could prove as a talking point for the further development of Swiss pensions law".

Contacted by IPE, a spokesman for the Federal Agency for Social Insurance (BSV) had no immediate comment on ASIP's proposals.

"As they just came out last Friday afternoon, we haven't had a chance to fully digest them yet," he said.