Switzerland should link pensioner incomes to long-term market interest rates, according to the International Monetary Fund (IMF). In its latest assessment of the Swiss financial system, the IMF said the ‘guaranteed conversion rate’ – which determines how much of a retiree’s second-pillar pension savings can be paid out each year – should be more flexible to account for rising life expectancy.
“Adjustment of the pension system parameters would support the sustainability of the social safety net,” the IMF said, adding that “population aging makes pension system reform essential”.
The conversion rate should be linked to “the market yield on a long-term sovereign bond and life expectancy at retirement”, the organisation stated. However, Swiss pension professionals criticised the idea of a market-driven approach at this year’s Swiss Pensions Conference, organised by the CFA Society Switzerland.
“This would be the best method to do away with the second pillar as it would become completely unattractive for its members” “The immediate shift to a market-valued technical interest rate [technischer Zins] would lead to a conversion rate of 3.6%, the application of generation tables and an interest rate slightly below 0%,” said Stephan Wyss, founder and managing director of research consultancy Prevanto.
Gerard Fischer, independent consultant and former CEO of Swisscanto, warned: “This would be the best method to do away with the second pillar as it would become completely unattractive for its members.” He added: “For people, it is only important to know what their pension can buy once they retire.” Fischer pointed out that Switzerland still had an “implicit defined benefit system” as pension promises remained unalterable once given.