The Publica pension fund lowers its technical interest rate
To prevent future pensions from dwindling, action needs to be taken now. This includes a lump-sum compensation payment and higher contributions.
As of 1 January 2015, the technical interest rate will be lowered from its current level – 3.5 per cent – to 2.75 per cent. This decision taken by the external pagePublica Fund Commission also entails an adjustment to the conversion rate. However, the intention is to maintain the current level of pension benefits by building up more provisions and taking other accompanying measures.
Publica cites the persistently low level of interest rates as the reason for making this move, its main purpose being to secure pensions for the long term. “Although Publica has managed to generate relatively good returns in the financial markets over the past few years, these will soon no longer be sufficient to keep the funded ratio stable on a multi-year average,” it says.
It therefore feels compelled to cut the technical interest rate in order to ensure that it can stabilise the funded ratio even in the event of a fall in the return on investment. This is, in their words, an “unfortunately unavoidable” measure.
Members to receive lump-sum compensation payment
The technical interest rate is used to determine the current value of pension entitlements arising in the future. It also has an influence on the conversion rate, which serves as a basis for calculating the pension amount. If the technical interest rate is too high, so too is the conversion rate and, consequently, the pension.
That is why the conversion rate, which stood at 6.15 per cent, is now being reduced to 5.65 per cent. This gives rise to an additional requirement for savings contributions of 8.85 per cent in order to keep pensions at a level comparable to what they are now.
To prevent a decline in pensions, substantial provisions will be built up by 31 December 2014. Following on from this, an additional payment will be credited to the individual accounts of the pension fund members as of 1 January 2015.
The Fund Commission has decided that members of the pension fund who are employed at ETH Zurich as at 1 January 2015 will receive a lump-sum compensation payment amounting to 8.85 per cent of their contributions. However, they will only be eligible for this if they joined Publica before 1 July 2014.
Higher contributions
New, higher contributions will apply for employers and employees as of 1 January 2015. This increase in contributions will range between 0.35 and 0.9 per cent depending on age.
Pension payments scheduled to be made before 1 January 2015 will not be affected by the technical interest rate reduction. The amount of these pensions will remain unchanged.