SWITZERLAND - A rise in the minimum interest rate of second pillar pensions from 2.25% to 2.75% would jeopardise pensions' financial health, according to the president of the Swiss Association of Pension Funds (ASIP).
Hanspeter Konrad, managing director of ASIP said: “I think the minimal rate should not be more than the current rate of 2.25%. I think the government will increase it to 2.75%.
“But it is not a good idea - the financial situation of a lot pension schemes is better than is has been, but it is still not comfortable.”
The social security council of the lower house of Parliament voted earlier in July to raise the minimum interest rate to 2.75% from January 2005, while the social security commission of the upper house voted in favour of a 0.25% increase. A final decision is expected when parliament reconvenes in autumn.
Konrad’s comment came during an ASIP members conference on the effects of legislative changes to pension schemes’ transparency and accounting practice that came into effect in April.
Presentations at the conference in Lausanne centred on how pensions funds should calculate liabilities and assets on the balance sheet and on new obligations to present that information to scheme members. The biggest change is in the way assets and liabilities are presented on pension schemes’ balance sheets, said Brigitte Schmid, a member of ASIP’s executive committee
“It’s a structural change,” she said. “Now there is the chance to compare results in balance sheets, in spite of uncertainties regarding liabilities and permanent reserves.”
Additionally, pension schemes are required to present their results to members on an annual basis, including the evolving calculations of actuarial risk, noted Marco Jost of Libera, during his presentation. Members must also be given an in-depth pension certificate that breaks down charges and future pension earnings, Jost said.
Pension schemes will have to concentrate on communicating with their members regularly, even though the law only stipulates an annual report, Konrad commented.
“It should be on an ongoing basis, I think,” he said. “Pension schemes must learn how to communicate to insurees information on the the financial situation, because it’s easier to explain difficulties, such as shortfalls, during the year. It’s not good to wait until the end of the year to present that.”
As part of the structural revisions, pension schemes must also build a reserve of between of total equity investments to protect against market fluctuations. These reserves are to be set by the board of trustees, Konrad explained. However, he warned that building adequate reserves could be difficult if the minimum interest rate was raised.
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