EUROPE - Switzerland's entire second-pillar pension system could be at stake if no solution is found to underfunded pension accounts, according Aon Hewitt Switzerland.

In the 'Swiss Pension Funds 2011-12' survey, the consultancy found that the majority of Pensionskassen lack sufficient reserves to "adequately cover their investment risk".

It also found that pension funds were lowering their discount rates on pensioners' assets (technischer Zins), as well as the conversion rate for future retirees (Umwandlungssatz), to account for future market uncertainty and rising liabilities and longevity.

But the consultancy pointed out that Swiss pension funds "hardly have the means to finance these developments and cushion the blow of a lower technischer Zins".

Werner Hertzog - the new managing director at Aon Hewitt Switzerland who recently joined from public Pensionskasse Publica - said: "The political over-regulation of central parameters like the conversion rate, guarantees and BVG minimum interest rate is leading to a strong inter-generational solidarity."

He said that such "solidarity" between the generations was never the idea behind the law on the mandatory second pillar (BVG) and that it "strictly belonged to the first pillar".

According to Hertzog, the younger generation has to pay three-fold in the current Pensionskassen environment - through a lower interest rate on their assets, by contributing to recovery measures and through lower conversion rates on their future pension assets.

He added: "It remains to be seen how long the young generation will put up with this, as they are in fact being robbed of their pensions. If we fail to face this problem, we will put the BVG system itself at risk."

Hertzog pointed out that, in addition to questions of funding, returns and recovery measures, issues such as Switzerland's ageing society and the development of the labour market had to be tackled.

According to its survey, Aon Hewitt expects discount rates to fall to 3-3.5% from the current average of 3.58%.

Average returns between 2006 and 2010 came to 1.6%.

For more about the technical parameters in the Swiss second pillar and their political implications, see the December issue of IPE magazine.