UBS is to pay up to CHF720m (€612m) into its Swiss pension fund over three years to mitigate the effect of cutting its conversion rate for future pensions, it announced today.
In addition to lowering the conversion rate, the employer and the pension fund agreed that the regular retirement age and employee contributions would be increased and savings contributions start earlier, UBS said in its fourth-quarter report.
The conversion rate is used to calculate pensions from accrued assets. UBS did not indicate what the reduction would be.
The measures would take effect from the beginning of next year “to support the long-term financial stability of the pension fund”, UBS said.
The measures were being taken as a result of the effects of continuing low or even negative interest rates, diminished investment return expectations and increasing life expectancy, it said.
The measures would have no effect on current UBS pensioners.
Together with UBS’ payment of up to CHF720m, the measures would reduce the pension obligation the company must report under International Financial Reporting Standards, resulting in a pre-tax gain of CHF225m in the first quarter of 2018.
The company said the payment would be made in three instalments in 2020, 2021 and 2022.
UBS is far from being alone among Swiss pension funds in lowering its conversion rate. Cuts to the technical interest rate, which feeds through to conversion rates, have been going on for several years as the country’s Pensionskassen try to get their funding positions on a sustainable footing. The pension fund of UBS’ peer Credit Suisse cut its conversion rate more than two years ago.
Willis Towers Watson recently found that the conversion rates for the non-mandatory portion of active members’ accumulated assets ranged between 4.7% and 6.4% at Swiss corporate pension schemes. The average conversion rate upon retirement at the age of 65 had continuously dropped over the past few years, with only 17.4% of all companies in the Swiss Leaders Index still using a conversion rate of more than 6%.