SWITZERLAND – Publica, Switzerland’s largest public pension fund, will lower its discount rate from 2015 and with it the conversion rate.
Publica decided to lower the discount rate, or technischer Zins, from January 2015 from 3.5% to 2.75% in order to “meet its members’ obligations” over the long term.
There is a continuing debate in Switzerland on whether Pensionskassen are using a discount rate that is actually too high, and the top supervisor wants to add this key figure to its calculations of the funding level.
The conversion rate at Publica will be lowered from 2015 to 5.65% from the current 6.15% for 65 year olds – and even lower for people retiring before that age.
Publica pointed out that the “continuing low-interest rate environment and the corresponding low investment returns” had made these steps necessary, but added that the fund would “open reserve funds” to balance out some of the cuts in benefits resulting from them.
The managing director of the fund, Dieter Stohler, had told IPE in that autumn that the “wider the gap between the legal minimum and the actual conversion rate used in the company, the smaller the buffer for compensation”, referring to the fact that those funds with a conversion rate lower than the mandatory minimum had to compensate this gap from their buffers.
He added that a further widening of the gap “might lead to a problematic situation, even for Publica”.
In other news, Swiss financial services provider ifund services has conducted a study among 200 Swiss pension funds with assets under management ranging from CHF100m (€83m) to CHF10bn on outsourcing trends in asset management.
According to the authors of the study, 91% of the surveyed funds used external managers and preferred mandates over funds because of their “flexibility”.
Further, passive management was used more than active management in the major asset categories, while it was the other way round in other asset classes such as convertibles, real estate and alternative investments.
ifund services also found that very few pension funds wanted to increase the number of external active managers, and some even want to reduce the use of active external managers, particularly in the domestic bond category.
“Various funds wants to further increase passive investments in their portfolio,” the authors noted.
Lastly, Swiss banking group UBS has reached a settlement with US and UK authorities over LIBOR-related claims.
In a statement, the bank said: “UBS agrees to pay approximately CHF1.4bn in fines and disgorgement to US, UK and Swiss authorities to resolve LIBOR-related investigations.”
Several international banks are facing charges for alleged manipulation of the inter-bank lending rate.
UBS conceded that “certain UBS personnel engaged in efforts to manipulate submissions for certain benchmark rates to benefit trading positions”, and that “certain employees at the bank colluded with employees at other banks and cash brokers to influence certain benchmark rates to benefit their trading positions”.
Further, it said “certain personnel gave inappropriate directions to UBS submitters that were in part motivated by a desire to avoid unfair and negative market and media perceptions during the financial crisis”.
It listed the Yen LIBOR, GBP LIBOR, CHF LIBOR, Euro LIBOR, USD LIBOR, Euribor and Euroyen TIBOR as benchmarks affected by this conduct, although to “significantly” varying degrees.