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Swiss unions accept public sector pension cuts

SWITZERLAND - Unions for federal employees insured by Publica, a CHF30bn (€18.6bn) pension fund, have decided against challenging new reforms to the scheme via a national referendum.

Late last month, Switzerland's parliament approved a host of reforms to Publica. They include a switch to defined contribution from defined benefit, an increase in the retirement age to 65 from 62 as well as a small hike in contributions to the scheme.

Although the reforms are to take effect from 2008, the 40,000 employees insured by Publica had the option of holding them up by staging a national referendum.

Yet VGB, a union representing the employees, said it would not be pursuing that option on behalf of the employees as the Swiss populace would likely agree with the reforms.

"It would have been extremely difficult to get the result we want. First off, all the major political parties agree with the reforms," said Hans Müller, VGB's president. "And - even though this is no longer the case - the Swiss public still believes federal employees are better off than everyone else," Müller added.

The VGB will now push for higher wages for federal employees to compensate for benefit cuts brought on by the reforms.

In 2005, a year of positive equity returns, Publica was fully funded and had a surplus earnings of CHF1.76bn.

But the scheme decided against distributing the earnings to members, instead using them to shore up reserves.

Publica justified the move by saying that only when its coverage ratio reached 115%, would it be in a position to distribute surplus earnings.

If the scheme had distributed the surplus, its members would have enjoyed a 9.9% return on instead of 4.5%.

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