SWITZERLAND - The pension fund for the city of Zurich, PKZH, is planning to increase its contributions by 3% and raise its retirement age.

In a letter to scheme members, managing director Ernst Welti said that, as a result of the financial crisis and low interest rates, the current arrangement was no longer sustainable.

Until now, members of the CHF12.8bn (€8.6bn) fund for the city's public sector workers contributed 6.5% of salary, with a further 10.5% contribution made by employers.

From next year, workers will be asked to pay 1.5% more, with employers expected to contribute an additional 2.5%.

In an attempt to reduce members' reliance on scheme returns, it will in future only pay 3% as a risk element of premiums, down from 4%.

The fund emphasised that both members and employers had long benefited from low contributions, while PKZH maintained the goal of offering 60% of salary upon retirement.

The scheme said: "Falling returns, the low interest rates and rising life expectancy now force PKZH to return to the contribution rate in place prior to 2002."

It noted that its current funding ratio of 113% was insufficient to keep all current pension promises, as a falling ratio would also diminish its ability to shoulder risk and force it to reduce its equity holdings.

Welti added: "Our members and the employers have benefited from low contribution rates for over 10 years. However, the return to previous rates, as existed until 2002, can no longer be avoided."

PKZH cited diminishing coupons on Swiss bonds, adding that while the country's debt used to return 6%, it has now fallen below 2%.

It therefore said the increase, as well as raising the age at which members can draw a full pension by a year to 64, was "unavoidable".