The Swiss federal council should strike a tough steadiness in the very best curiosity of pension funds and the insured concerning the upcoming choice on the minimal rate of interest to use on pension property in 2021.
The federal fee for occupational pensions, BVG-Kommission, has advisable that the federal government lowers the minimal rate of interest for occupational pensions subsequent yr from the present 1% to 0.75%.
The minimal rate of interest applies to pension property of the insured already enrolled within the first pillar system AHV (Alters- und Hinterlassenenversicherung) with a minimal annual wage of CHF21,330 (€19,631) – the so-called necessary a part of occupational pensions, or BVG-Obligatorium.
“I don’t know if the federal council will settle for our suggestion. It’ll rely on the finish of October on the rate of interest state of affairs,” Christine Egerszegi-Obrist, the president of the occupational pension fee, instructed IPE.
The BVG-Kommission has determined to recommend a minimal rate of interest of 0.75% following the affect of the coronavirus disaster that led a number of Pensionskassen to ease rates of interest granted, Egerszegi-Obrist mentioned.
“We don’t know what sort of a framework this may really have an effect on,” she mentioned.
Though the fee has urged 0.75%, the federal council could take a look at whether or not the state of affairs will enhance by bringing the minimal rate of interest to 1%, Egerszegi-Obrist added, noting that the COVID-19 disaster is just not but overcome.
It’s tough to use a minimal rate of interest of 1% if the proportion of pension funds which have relaxed rates of interest is excessive, she added.
The Swiss pension fund affiliation ASIP has known as for a minimal curiosity of as much as 0.5%, its managing director Hanspeter Konrad instructed IPE.
The minimal rate of interest is decided yearly, with the decisive components counting on the progress of returns for presidency bonds, equities, and actual property.
The fee calculates the minimal rate of interest primarily based on a components that takes into consideration sure authorized necessities – this yr it resulted in a decrease worth on the finish of July.
Different components embrace making an allowance for whether or not pension funds can afford the rate of interest in gentle of the returns that they can generate on the fairness market.
“ASIP has campaigned for years for the usage of a components as a rule. The present components leads to values effectively under 1% as minimal rate of interest,” Konrad added.
The extent of rates of interest has decreased additional year-on-year, whereas the monetary state of affairs of most pension funds has deteriorated in comparison with the tip of 2019, regardless of a partial restoration after the sharp value stoop in spring. Konrad added.
“The pandemic ought to function a warning to us about how vital it’s to assume forward and take acceptable precautions,” he continued.
“The pandemic ought to function a warning to us about how vital it’s to assume forward and take acceptable precautions”
Hanspeter Konrad, ASIP managing director
In Its suggestion, the BVG-Kommission famous that pension funds can determine to overstep its suggestion of the minimal rate of interest of 0.75%, if the monetary state of affairs permits it.
However underlines concurrently that pension schemes accountable just for the obligatory a part of occupational pensions should not have the margin to up rates of interest as they undergo from excessive conversion charges used to calculate pension payouts from accrued property upon retirement, or Umwandlungssatz (UWS).
Konrad mentioned that rates of interest and conversion charges which might be of a excessive minimal stage “don’t match collectively”.
Excessive minimal rates of interest enhance the strain on the monetary state of affairs of pension funds in view of the low rate of interest atmosphere and declining technical rates of interest, he defined.
BVG-Kommission’s suggestion will doubtless have an effect on the flexibility of pension funds to realize the specified stage of returns.