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Swiss pension funds lack 'honesty', experts say

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  • Swiss pension funds lack 'honesty', experts say

SWITZERLAND - The Swiss second pillar needs more "honesty" - both in what it promises members as well as in return assumptions - Pensionskassen representatives told delegates at the first Swiss Pensions Conference organised by the Swiss CFA society.

Christoph Ryter, managing director at the Migros Pensionskasse and head of the Swiss pension fund association ASIP, would like to see "more realistic return assumptions" to be included in the benefit calculations - especially given the current low-interest environment.

Yvan Lengwiler, deputy head of the asset management commission at the pension fund of Basel city, said Pensionskassen were "not really honest" when it came to their guarantee promises, being merely nominal guarantees without indexation.

But Ryter pointed out that people preferred a 2% pension increase while inflation was at 4% over a 0% increase at 2% inflation.

And Markus Hübscher, head of the SBB Pensionskasse, raised the question of whether it was by definition a 'benefit cut' - as critics called a further lowering of the conversion rate - when a longer life leads to a lower monthly but longer pension pay-out.

Actuary and pension fund expert Oliver Deprez sees an increase in contributions ahead for the second pillar, but "not indefinitely".

An increase of the retirement age beyond the legal maximum is not an option in the second pillar without changes in the first pillar.

Deprez called on the government to make a new proposal regarding the conversion rate, but said this time it would need to include other measures like an increase in the retirement age.

"We have to present work as something good and desirable," he said, adding that the measure regarding elder workers, which is part of the structural reform, was "a first step in the right direction".

Last year, the government as well as the pension fund industry suffered a severe blow when the majority of Swiss citizens rejected further cuts in the conversion rate in a binding referendum.

Pension fund expert Claude Chuard said: "It seems we are not suffering enough as yet, so the need for reform is not that obvious."

According to Deprez's calculations, Switzerland already needs to increase the statutory retirement age for males by four years and for women by 3.5 years, or put more money into the system.

Chuard pointed out that major overhauls of the system that take a lot of time to be approved and implemented are "doing more harm than good", as the problems are merely postponed.

He quoted Sweden as an example where an automatic increase of the retirement age was part of the legal framework.

Regarding the uncertainty of longevity projections, both Deprez and Chuard conceded it was "definitely better to make any assumptions than none at all going forward".

Chuard added: "We could always make adjustments step by step, as these are slow developments, but if we do not do anything, we have to do a major overhaul."

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