Aargauische Pensionskasse (APK), the Swiss pension fund for the employees of the Aargau canton, will decrease its conversion rate from 5.3% to 5% from 2022.

The conversion rate will gradually drop over the years 2022-2023 for beneficiaries aged 65 years old.

The savings of the insured as of 31 December 2021 will be increased by 1.25% over two years. APK will finance the measure with its own reserves, it said.

The change does not have an impact on pensions provisions granted before 2022. The conversion rate, or Umwandlungssatz, is used to calculate pension benefits at the time of retirement based on accrued assets.

The new conversion rate takes into account the increase in life expectancy to calculate pensions.

APK’s board of directors, who took the decision to change the actuarial principles to calculate the conversion rate, moved from a so-called periodic table, which refers to the mortality within a time period, to a generation table, where mortality depends on age and year of birth.

These principles are used to calculate the actuarially correct value of the conversion rate, it said. The change, according to APK, improves the future financial stability of the Pensionskasse.

Increasing life expectancy and low interest rates have hit APK hard, it said, adding that the scheme can sustainably finance future pensions only if it reduces its conversion rate.

APK said that it built reserves in the past so that the new method to calculate the conversion rate does not have a direct impact on its funding ratio.

Furthermore, reforms to the Swiss second pillar pension system include the reduction of the minimum conversion rate from 6.8% to 6% as one of its main points.

According to consultancy Complementa, however, the conversion rate already dropped from 5.63% in 2019 to 5.57% this year. Pension funds plan to apply a conversion rate of 5.32% in 2025.

The actuarial correct value for the conversion rate is 4.68%, lower than the suggested 6% as part of the second pillar reform.

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