The “third contributor” is back in the occupational pension scheme – thanks to the turnaround in interest rates. SRF business editor Susanne Schmugge explains how this affects the pension fund assets and the problems of old-age provision.
Susan Schmugge
SRF business editor
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Susanne Schmugge is a business editor at SRF. She studied history with a focus on economic history and social sciences and has been working at Radio SRF since 2008.
Who is the “third contributor”?
In the case of pension funds, the second pillar of old-age provision after the AHV, it was said for decades: the system works because of its three contributors – the employed, the employers and the capital market returns. However, the latter were meager in the years of low and negative interest rates. Only in 2022 did the wind turn. You have to know that pension funds invest an important part of their investments in bonds, such as government bonds. The general level of interest rates plays an important role here.
Why have interest rates risen?
The central banks have raised their key interest rates to combat inflation. The Swiss National Bank has raised the key interest rate five times since June 2022, from -0.75 percent to the current 1.75 percent. All other interest rates are based – to a greater or lesser extent – on the key interest rate.
What has changed for pension funds with the rise in interest rates?
You make money again with bonds, i.e. generate more income with bonds. A typical bond held by a pension fund is a government bond from the Swiss Confederation, a so-called federal bond, which has a term of 10 years.
Why are these bonds important for pension funds?
Because pension funds have a long investment horizon and the bond market fluctuates less than the stock market. Bonds are therefore in line with the long-term obligations of pension funds. Because they have to guarantee their insured persons pensions of a predetermined amount until the end of their lives.
What does this mean for the upcoming reform of occupational pensions – is this still necessary?
Many pension fund experts still see a need for reform. They argue that the interest rate level relevant for bonds would have to rise much more sharply in order to enable sufficient returns – even without reform. You have to know: In addition to the general level of interest rates, increasing life expectancy plays an important role in financing old-age provision. In the case of pensions from the pension fund, what is known as the conversion rate is also of great importance. It determines the rate at which the insured person’s accumulated retirement capital is converted into a pension. With the forthcoming reform of occupational pensions, the conversion rate in the so-called obligatory pension plan is to be reduced from 6.8 to 6 percent. However, the reform is controversial in a number of respects. Leftists and trade unions have taken the referendum against it. We will vote on it in 2024.