SWITZERLAND - The Federal Council of Switzerland is to lower the minimum interest rate from 3.25% to 2.25%, effective January 1, 2004.
The Council or Bundesrat, said that because of strong fluctuations which have characterised financial markets in recent times, interest rate levels will now be examined annually, starting next year.
The decision to trim the interest rate was based on research by Complementa Investment consulting and AWP Securitie Sociale.
The study revealed that the proportion of pensions funds with a deficit rose from 45% at the end of 2002 to 60% at the end of March 2003.
Jurg Brechbuhl, vice-director of the Federal Office of Social Security (Office Federal des Assurances Sociales), explained that this number had since fallen to around 40% thanks to a rebalancing of stock exchanges.
But he warned that these funds are still at risk from a reversal in the stock markets, with only 20% of funds boasting 100% funding levels and sufficient reserves.
Brechbuhl added that the easing of financial markets during the second quarter justified a higher interest rate than the 2% which was proposed by the Federal Commission and based on figures until March-end 2003.
The Council also explained that the present rate was necessary in light of the proposed reduction in the conversion rate from 7.2% to 6.8% over the next 10 years. This reduction is already late by one year.
Brechbuhl said: “If investments rise next year over and above the fixed interest rate, then pension funds will have the chance to boost reserves, which have crumbled over the past three years due to low markets, and eventually be able redistribute these surpluses among their beneficiaries.”
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