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IPE special report May 2018

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Swiss railway pension scheme to cut conversion rate

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  • Swiss railway pension scheme to cut conversion rate

SWITZERLAND - The Pensionskasse of the Swiss federal railways (SBB) will be cutting its conversion rate and compensate members by liquidating longevity reserves.

From October 2012, the 'technischer Zins' - the discount rate used to calculate the future appreciation of retired members' assets - will be reduced from 3.5% to 3%.

The conversion rate, or 'Umwandlungssatz' - used to calculate pensions from accrued assets - will in turn drop from 6.52% to 5.85%.

The pension fund noted that the decision was made due to "increasing life expectancy" and "low capital market rates".

The Pensionskasse said market turbulence in recent months had pulled the funding level "below 100%", even when taking into account the financial aid provided by the government

To compensate its members for the pension cuts, the fund will liquidate CHF300m (€243m) in reserves accrued in recent years as longevity buffers and pay it out to active members as a voucher for a future one-off pension hike.

The fund said the change in the conversion rate no longer made these buffers necessary for the future.

Publica, Switzerland's largest pension fund, made a similar move to decrease the conversion rate earlier this year.

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