Publica, one of Switzerland’s largest pension funds, will reduce pension promises for future retirees with effect from January 2019.

The CHF38bn (€35bn) pension fund for federal employees in Switzerland yesterday announced that it would cut its technical rate and conversion rate with effect from 1 January 2019.

In doing so, it followed moves made by other Swiss pension funds seeking to shore up their long-term financial stability in the face of the country’s ultra-low interest rate environment.

Publica said it would cut the technical rate (technischer Zinssatz), which is applied to active members’ accrued assets, from 2.75% to 2% for its open pension schemes, and from 2.5% to 1.25% for closed schemes.

Publica is a collective institution comprising 20 schemes, seven of which are closed and 13 open.

The conversion rate (Umwandlungssatz), which is used to calculate members’ pension payout levels, would be lowered from 5.65% to 5.09%, Publica announced.

The pension fund said it took the decision with a view to securing benefits over the long term, and that “realistic” technical parameters were part of the measures the fund was focussing on to respond to the continued low interest rate environment and declining return expectations.

It said it would specify by the middle of the year how the benefit cuts associated with the new technical parameters should at a minimum be “cushioned”. It is up to the open schemes’ decision-making bodies – comprising employee and employer representatives – to decide which measures can be implemented to offset the effect of the lower conversion rate for their respective members.

Under the intensely contested “Altersvorsorge 2020” (AV2020) pensions reform that was recently agreed in parliament, the minimum conversion rate is due to be lowered from 6.8% to 6% for those assets accrued based on the absolute minimum contribution required under the second pillar law.

The question of how this should be offset was one of the most hotly debated aspects of the reform.

Publica announced the future technical parameters in the context of its official annual results.

These largely confirmed preliminary figures released in January, with Publica saying that its industrialised and emerging market investments were the main drivers of its strong performance in 2016, and that Swiss real estate was one of the successful asset classes as its holdings gained 10%.