This morning the Swiss federal council, the 7-member executive branch of Switzerland’s government, decided to reduce the minimum interest rate pension funds must pay savers.
Starting on 1 January 2016, the minimum rate will be 1.25% instead of the current minimum of 1.75%.
On 30 August 2015, the federal pensions commission decided by a large majority to advise the Swiss federal council to reduce the rate. Several benchmarks are used to decide minimum pension rates. In particular, the evolution of the stock market, returns on Swiss government debt and property market returns.
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At the end of August 2015, 7-year Swiss government bonds had a negative yield or return of -0.38 percent – some pension funds holding these will be losing money on them. While the stock market performed well in 2014, 2015 has been mixed. Swiss leaders decided that the combined returns are not high enough to impose the current minimum of 1.75% on pension funds in 2016.
While these rates are low, the increasing purchasing power of Swiss franc might help to reduce the pain savers will feel next year. Switzerland has experienced deflation. Swiss consumer prices were 2.3% lower in September 2015 than at December 2010. In the year to September 2015, consumer prices fell by nearly 1.5%.