SWITZERLAND – ARE PENSION SAVINGS YIELDING LESS RETURN?

Retirement savings will earn less interest; the Federal Commission for Occupational Pensions is proposing that the minimum interest rate under the Occupational Pensions Act (OPA) be reduced from the current 1% to 0.75%.

Well, you already knew that the AVS would leave you starving in Switzerland... So you thought to yourself: "Thank goodness I’ve got my second pillar! Phew..." 

And rest assured, the Federal Commission for Occupational Pensions hasn’t forgotten you and is doing what’s necessary to ‘save’... save your pensions, in fact!!

Of course, as you’re still earning far too much in retirement and haven’t yet starved to death or become completely dependent on welfare, this needs to be rectified by further lowering the already pitiful return on your LPP to... 0.75%... when will we see negative interest rates?

I suspect the Federal Commission for Occupational Pensions’ next move will be to automatically enrol you in Exit as soon as you reach retirement age, as the wait is likely to be even longer now...

In short, if you do not want to suffer the fate that awaits you, if you wish to be in control of your pensions and if you wish to leave an income-generating estate to your heirs, we cannot recommend strongly enough that you seriously consider rental and/or tourist property investments abroad.

Another good solution would be to withdraw your LPP and invest it wisely, rather than watching this capital lose a little more of its investment value every day in return for yields that will only ever get lower; this is certainly one of the best ways to manage your savings effectively.

Alain Farrugia

Returns on 2nd pillar assets are expected to be lower next year. The Federal Commission for Occupational Pension Provision recommends lowering the minimum interest rate to 0.75% in 2019, down from the current 1%. The Federal Council will decide on this in the autumn.

The commission voted on several options and decided by a narrow majority to recommend a rate of 0.75%, it said on Tuesday. The proposals ranged from 0.25% to 1.25%.

The rate determines the minimum interest at which retirement assets under the mandatory occupational pension scheme must be remunerated. Beyond that, pension funds are free to decide whether or not to provide cover and to set a different rate of return.

In making its recommendation, the commission, which includes representatives of insurers and employees, took into account the fact that this relates to a minimum rate. The supreme joint body may set a higher rate if the financial situation allows, it notes in its press release.

For insured persons, the situation has deteriorated significantly since 2002, when retirement assets still had to be remunerated at a minimum rate of 4%. From 2009 to 2011, the floor was still 2%.

New method

The Federal Council sets the rate based on the performance of Swiss government bonds and, in addition, on that of shares, bonds and property. This spring, the commission decided to adapt its calculation method.

The new formula is based on the same principle as the previous one, but takes greater account of current interest rate trends and the actual asset allocation of pension funds. It uses the current yield on ten-year Swiss government bonds instead of seven-year bonds.

As the result obtained is slightly higher than with the old formula, the commission wishes to retain the old method alongside the new one for at least another three years.

Angry employers

For the Swiss Employers’ Association, this recommendation does not go far enough. It considers a minimum rate of 0.5% to be more justified and questions the new calculation method. The commission’s decision definitively makes the minimum interest rate a political issue, employers believe. This decision-making power should lie with the managers of the pension funds.

The Swiss Insurance Association shares this view. The commission’s proposal is still too high. They go further than the UPS by advocating a rate of 0.25%. Conversely, the trade unions deplore this reduction. For Travail.Suisse, the commission’s decision is incomprehensible. The organisation argues that the commission had good reasons to maintain the 1% rate, especially as the situation of pension funds has stabilised.

In the view of the Swiss Trade Union Federation, a rate below 1% leads to ever lower pensions and undermines insured persons’ confidence in the second pillar. That the capital of the mandatory scheme is so low is a scandal compared to the average return of 5.5% achieved by the funds in recent years.

Source: Le Matin