Switzerland’s occupational pensions, known as the 2nd pillar, are feeling the squeeze of lackluster returns and an aging population. This week, the government added to the strain by setting the minimum rate pension managers must pay pension holders at 1.25% for 2024, a 0.25 percentage point rise over last year, reported RTS.
Inevitably, the announcement triggered the ire of both those representing workers, who receive pensions, and those managing the money to pay them.
Unions complained that the 1.25% falls short of annual inflation, which rose as high as 3.5% in May 2023. While this is true, on the other side, recent investment returns have been poor, making it difficult to fund higher rates on pension savings. Some unions demanded rates of 2%. USAM, an organisation representing small and medium sized businesses demanded one of 1% and the Swiss Employers’ Union a rate of 0.75%.
The Swiss Employers’ Union pointed to gloomy financial market forecasts, something it says will make it difficult to cover even the current 1% minimum rate of return on 2nd pillar pensions.
The Swiss Performance Index (SPI), Switzerland’s main stock market index, lost 16.5% of its value over the course of 2022. So far this year it is up 1%. And while Swiss government bonds have moved from negative yields they remain low. The yield on 10-year federal bonds is currently around 1.12%, short of the 1.25% rate Swiss pension funds will need to add to what they owe 2nd pillar pension holders next year.
In addition to demanding higher returns on pension contributions, unions want to maintain the annuity percentage at 6.8%, a rate that fund managers have long argued is untenable given market returns and and an aging workforce. Those managing pensions would like to see the rate cut to 6%. Reducing this rate forms part of a proposed package of pension reforms working their way through the system.