SWITZERLAND - The Swiss government has followed the recommendation of the occupational pensions commission and cut the minimum interest rate in the second pillar to 1.5% for next year.

All Pensionskassen must now grant the minimum interest rate, or Mindestzins, on active members' savings accounts.

Since the creation of the second pillar in 1985, this minimum interest rate has been lowered from 4% to the current 2%.

In September, the commission on occupational pensions, BVG-Kommission, recommended a further cut to 1.5%.

The government has now followed this advice by setting the rate to 1.5% for 2012.

In a statement, the government said the rate change was an "appropriate response" to the current volatility on financial markets.

Christoph Ryter, president of pension fund association ASIP, said: "1.5% is a step in the right direction, and we can live with that."

Othmar Simeon, managing director at Swisscanto, told IPE that 1.5% seemed "very little", but, given the market returns, is "still too high".

According to chartered pension fund expert and consultant Claude Chuard, the figure is "more realistic but still too high".

The BVG-Kommission and the government are basing their calculations for the rate on the long-term average yield of seven-year Swiss government bonds, as well as a portfolio of equities, bonds and real estate in the Pictet BVG Index 93 and the IPD Wüest & Partner Index.

In the course of the debates in the BVG-Kommission, the unions had voted to keep the rate at 2%, while employee representatives suggested a rate between 1.75% and 1.25%, and the Swiss insurance association SVV demanded a cut to 1%.

Read more about pensions in Switzerland in general and the minimum interest rate in particular in IPE's December issue.