The Swiss government has cut the minimum rate of return on company pensions by one per cent to lighten the load on the country’s beleaguered insurers.This content was published on September 10, 2003 - 13:58
From January, 1, 2004, insurers will have to deliver only a 2.25 per cent return, compared with four per cent just a year ago.
The cut will be the second in a year – on January 1, the government reduced the rate of return on occupational pensions to 3.25 per cent.
In a statement on Wednesday, the government said the rate would now be reviewed on an annual basis. It added that this was necessary given the volatile nature of the financial markets, which affected returns on investment.
The decision was in line with analysts’ expectations, and eases the commitments of insurers, which have been struggling to maintain the previous guaranteed minimum rate amid the economic downturn.
The unions and the centre-left Social Democratic Party – one of the four in government – criticised the cuts as too severe. The Social Democrats had recommended a reduction to 2.5 per cent in view of the recent market recovery.
They added that the government had failed to devise a proper formula for determining the rate of return, since there were no provisions to raise it when the economic conditions improved.
The news was welcomed by the markets and the centre-right parties – the Christian Democrats (also in government) said they were happy the rate had not been cut to two per cent.
Analysts say the existing rate – or 3.25 per cent –exceeded what insurers could earn on their investments, forcing them to make up the shortfall from their own reserves.
They said this was forcing some insurers to leave the market – which provides pensions for about half a million Swiss workers – or to stop writing new business.
The government’s decision came a day after a Senate Commission on social welfare and health called for a change in the law to prevent insurers from unilaterally reducing the rate of return on occupational pensions.
That decision was in response to a move earlier this year by leading insurer, Winterthur, to cut the rate of return over a certain threshold.
The Senate Commission’s recommendation means that the law, which is due to be passed this year, is likely to be amended to prevent insurers from making “short term and sudden changes” to private pension schemes.
Amid the discussion over the rate of return on occupational pensions – the so-called second pillar - Swiss trades unions were expected to launch a series of nationwide demonstrations on Wednesday to protest proposals to raise the retirement age.
The interior minister, Pascal Couchepin, caused a furore earlier this year when he suggested raising the pension age in two stages to 67 (from 65 now). He said this was necessary to “save” the state pensions scheme – the first pillar.
Unions and the Centre-left have vowed to block any moves to tamper with the retirement age.
swissinfo with agencies
The cut - from 3.25% to 2.25% - is the second in a year.
It will come into effect on January 1, 2004.
The decision was taken to ease the pressure on insurers, which have been struggling to maintain the existing minimum rate.
The government said the rate would henceforth be reviewed on an annual basis.
The unions and the Centre-left have criticised the cuts as too severe.
This article was automatically imported from our old content management system. If you see any display errors, please let us know: email@example.com