SWITZERLAND - Swiss trade unions have blasted the Swiss Federal Council's decision to lower the minimum interest rate guarantee by one percentage point to 2.25% as being party to arbitrary politics.
Travail Suisse, the Swiss trade unions confederation, claimed that the government was “bowing down to life insurers.” It views the move as severely threatening the second pillar of the Swiss pension system.
The confederation argued that with 10-year Swiss government bonds yielding 2.77% and the BVG Performance Index from Pictet having gained 4% since the beginning of the year, the rate is too low.
The response from Switzerland’s largest trade union, the Schweizerischen Gewerkschaftsbund was equally fiery: “A rate that is too low gives the shareholders and the management of the life insurers a guaranteed profit at the expense of the insured, who in return will be fobbed off with a smaller pension.
“The crippled pensions system needs transparency, credibility and stability and no heave-ho decisions on the part of the Federal Council.
Forty percent of Swiss pension funds are still underfunded, which the Federal Council seems to have used as one of its justifications for the rate cut. Keen to highlight the dented risk capacity of many pension funds and the fact that we may not have yet seen the back of volatile financial markets, the Federal Council claimed that the rate cut aims to instal stability and long term security of occupational pensions. The recommendation in May from the BVG-Kommission was for a cut to 2%, but in the face of improving financial markets the rate was adjusted by slightly less.
“I don’t think that its too low or too high, I just think it’s wrong how it’s being decided upon,” commented Urban Müller, managing director at SSgA in Zurich.
“Is it just supposed to reflect investment opportunities, or to what extent is it also supposed to take into account the state of pension funds? One cannot say, since the objectives for the rate have not been unambiguously defined - it has therefore become a political figure.”
He added: “This is a nominal interest rate, and really what should be set if you do set something is a real interest rate target, because at the end of the day your liabilities are in real terms.”
The new rate comes into force in January 2004 and will be subject to an annual review.
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