SWITZERLAND - The Swiss canton of Argau has used its share of the Swiss National Bank’s CHF14bn (€8.9bn) gold sale to finance the merger of its two pension funds and lower its pension deficit.

The measure was highlighted by rating agency Standard & Poor's, which today confirmed its 'AA+/A-1+' credit ratings on the canton.

Analyst Thomas Fischinger told IPE that at the beginning of 2004 the canton used about CHF1bn to finance the merger of its two under-funded pension schemes.

The single fund, currently worth about CHF6.3bn, has a solvency ratio of 76%. “For a public Swiss pension fund this is quite normal, nothing to cause concern, although 100% solvency_ratio would be the perfect thing,” Fischinger said.

Argau’s pension-related expense is about to be refunded as the central bank has started distributing the proceeds from the government-ordered sale of 1,300 tons of surplus gold.

Fischinger said the canton had done “a positive thing” to use the cash injection to address the long-term issue of its pension deficit. The analyst said that Argau’s share of the gold proceeds was likely to be a refund of the pension expense. The canton was not available for comment.

S&P said in its report that the canton's debt, is planned to reach 44% of operating revenues in 2005 but the ratio increases to about 75% of operating revenues in 2005, when taking into account the guaranteed under-funding of the pension fund.

The idea of using gold-sale proceeds to solve the pension issue was first put forward by the lower chamber of parliament. Last year it voted for two thirds of the sale proceeds to go to the first pillar’s pension scheme AHV.

But at the end of last year the Federal Council settled that cantons receive two thirds of the sum or CHF14bn, while the state the rest, leaving the AHV empty-handed.