SWITZERLAND - The head of a pension fund (Pensionskasse) for the Swiss canton of Solothurn has played down the significance of the scheme's CHF563m (€338m) funding deficit.
"Because we, like other public pension funds, have a government guarantee, the fact that we are only 80% funded is sufficient," said Roland Walter, head of the Pensionskasse Solothurn (PKSO), a CHF2.4bn scheme for civil servants in the canton.
Walter made the comment yesterday during a presentation of PKSO's results for 2006 in the city of Solothurn.
PKSO's guarantee means while it, theoretically, could only pay out around 80% of the money owed to its beneficiaries, the government - the canton of Solothurn - would cover the remaining 20%.
Several public schemes, including a CHF5bn fund for civil servants in the capital of Berne (BLVK) and a CHF7.9bn fund for civil servants in the city of Basle (PKBS), have suffered from chronic underfunding in past years.
BLVK's CHF580m deficit was in part caused by overexposure to shares during the equity crash earlier this century.
But Graziano Lusenti, a well-known Swiss consultant, said in most cases, the deficits at public schemes were actually a result of some cantons' or cities' failure to fully capitalise them and not the result of poor investment results.
"In many cases, the underfunding has happened because too generous benefits were promised without adequate contributions being raised or without additonal funding from the governments and this over a number of years," Lusenti told IPE from Nyon, the headquarters of Lusenti Partners.
"Sure, financial markets had a hand in causing the deficits at some public schemes, but I think the structural problem lies more with insufficient funding from their government backers," he added.
It's unclear whether the schemes can, in the future, count on a government guarantee to protect them from insolvency. The city of Basle, for example, has made the scrapping of a guarantee a condition of the CHF1.3bn bailout of its Pensionskasse.
Fortunately for PKSO, Walter said the scheme's funding ratio had improved to 81% in 2006 from 79% in 2005 and from as low as 63% in 1992.
PKSO's return on assets, buoyed by a good performance of its equity holdings, totalled 6.1% in 2006 - just below a 6.6% average of other Swiss Pensionskassen.
PKSO has 37% of assets invested in equities, including 20.4% that are Swiss and 16.6% that are foreign. Bond allocations total 50%, including 41.4% which are denominated in Swiss francs.
PKSO also invests 8.5% in real estate, almost all of which is in Switzerland, as well as 2.5% in alternatives.