Swiss workers stand to receive reduced company pension benefits under government plans to reduce minimum yields from four to three per cent.This content was published on July 5, 2002 - 08:42
The government's surprise move is being seen as a reaction to weak financial markets and low interest rates.
But trade unions say the government has simply bowed to pressure from Switzerland's powerful insurance companies.
Most big firms in Switzerland place their pension funds in the hands of large insurance companies, which until now have been required to guarantee a minimum yield of four per cent.
The guaranteed minimum has been in force since 1985, when interest rates were high. In recent years though, as rates have fallen, insurance companies have been forced to make up the short fall from their own funds.
Swiss insurance companies, many of whom have been lobbying the government for just such a reduction, have welcomed the decision, which is due to come into force in October.
Stocks in some of the bigger companies such as Swiss Life rose sharply at the news of the change.
"This is a step in the right direction," Simone Zindel of Swiss Life told swissinfo. "It corresponds to the situation in the financial markets."
But there has been an angry reaction from Swiss trade unions. Colette Nova, a lawyer for the Swiss Federation of Trade Unions, said the government had simply followed the orders of the insurance companies.
"This decision was made in a hurry without any concrete information about the financial situation of the pension funds or of the insurance companies," Nova told swissinfo. "The insurance companies are being greedy; in the past they earned much more than they ever paid back to the workers."
The unions claim that, given the high interest rates of the 1990s, the insurance companies could have sometimes paid much higher rates than four per cent, but had failed to do so.
But Zindel rejected the charge. "In the past, when times were better, we paid back 95 per cent of our gains to our clients," she maintained. "Now that times are more difficult we are losing money - in the past year alone we lost SFr400 million just because of the four per cent minimum yield."
Questions over timing of decision
Political and financial analysts are also asking why the government should have made this decision now. Since spring a parliamentary commission has been working on a revision to the pension law.
However it seems the government announcement over a relaxation in minimum yields was made without consulting the commission.
Higher costs for pension holders
Most workers in Switzerland earning more than SFr25,000 a year with the same employer have a company pension which is managed by one of the big insurance companies. Those contributing to such pension schemes were led to believe that the four per cent yield was secure.
Although the lowering of the yield will not affect people who are already retired, working people will almost certainly have to contribute more to their pensions in order to realise the amounts originally projected for them.
The younger the employee, the more he or she is likely to lose. A pension fund holder aged between 25 and 35 years old stands to lose about 15 per cent of his or her projected pension benefits, if the minimum yield remains at the new level of three per cent.
Company pensions of this type are widespread in several European countries. They are particularly common in Britain, Ireland, and the Netherlands. But they are growing in popularity in Germany and Italy too.
In 1999 total European pension funds amounted to over €2715 billion, with Swiss pension funds containing around €300 billion.
Imogen Foulkes with agencies
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