Pension funds, corrective action urgently needed

The Federal Social Insurance Office (FSIO) publishes a report taking a stand on the worrying position of pension funds. The following is an extract from their statement (ats):

Corrective action to stabilize the position of pension funds cannot be put off any longer. The situation can only get worse, according to the Federal Social Insurance Office (FSIO). On the other hand, a reduction in rates of return or an increase in contributions would have a purely marginal impact on the situation.
The crisis on the financial markets is a drain on the second pillar of the pension system. However, there is doubt as to whether corrective action should be taken in the middle of a recession or whether it would be better to wait until the tide turns to avoid driving the economy further down. In a study published on Friday, the FSIO is clear: “the effect of a moratorium would be disastrous”.

The financial burden would only be higher if corrective action were taken after the moratorium. We have to ensure that, when the recovery comes, companies will not be hit with additional costs likely to reduce their international competitiveness. It is also more difficult to recruit personnel in the presence of a significant pension fund deficit and proposed or deferred corrective measures.

Moreover, according to the FSIO, delay could give out a false signal: ultimately, the general public will have no confidence in the system unless financial equilibrium is assured. Corrective measures would make for added security.

The two measures proposed by the Office – namely, a reduction in rates of return and an increase in contributions – are not, according to the latter, expected to have a significant negative impact on the labour market or overall demand, either in 2010 or the years following.

According to the FSIO, almost 6 out of 10 pension funds are running at a deficit. At the end of 2008, those institutions without a Government guarantee presented a deficit of 22.335 billion Swiss francs. Other institutions recorded an overall deficit of 15.398 billion Swiss francs.

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Mesures d'assainissement dans la prévoyance professionnelle et repersussion sur la conjoncture (Rapport du 20 mai 2009) 153 kb / PDF

Sources:
- FSIO
- awp/ats