Definitive interest on Capital in Pension Plan (incl. ER Account) and Capital Plan 2020

After the initial shock reaction to the coronavirus in the first quarter, a relative calm returned to financial markets in 2020, with valuations reflecting the long-term outlook. This lifted the markets even as the pandemic continues, allowing the Pension Fund Swiss Re to achieve handsome gains at year-end 2020. 

Pension Plan

The Pension Fund Board decided the following at its meeting of 8 December 2020:

  1. The interest rate to be applied to the retirement savings capital in the Pension Plan and the ER Account is set at 1.50%, with retroactive effect from 1 January 2020 (definitive interest rate pursuant to Art 20 item 1, letter b), which corresponds to the 1.5% interest rate currently guaranteed on the retirement savings capital for pension beneficiaries. The interest rate is valid for all those who are insureds (meaning active, non-retired members) on 31 December 2020 as well as all members who took retirement between 1 January 2020 and 31 December 2020.                                                                                                                                                                                            This means the interest rate for the mandatory and extra-mandatory retirement savings capital in the Pension Plan (including the ER Account) is 0.50% above the BVG minimum interest rate.                                                                                                                                                                                                                                               
  2. For the first time, moreover, the return on investment reported for 2020 allows redressing some or all of the redistributions from insureds to pension beneficiaries in recent years, offsetting them in full for the prior two-year period of 2018-2019 and in part for 2017 and doing so without undermining the long-term financial stability of the Pension Fund. This means each insured has additional interest accruing to them at the rates indicated for the years below, in accordance with their years of membership with the Pension Fund Swiss Re:                   

         - 2019: 0.64%

         - 2018: 1.07%

         - 2017: 0.54%

This additional interest also accrues to pension beneficiaries who began retirement during 2017-2019 and is meant to close the gap between the interest rate applied for insureds and the imputed interest rate applied for pension beneficiaries during the relevant period. The additional interest is calculated based on the retirement savings capital in the Pension Plan and in the ER Account at 31 December of the relevant year (for insureds) or at the retirement date (for pension beneficiaries). The total interest amount is credited to the retirement savings capital on 31 December 2020. For pension beneficiaries who began retirement in 2017-2019, the interest will be paid out as a lump sum in the first quarter of 2021. 

For insureds who joined the Pension Fund Swiss Re on or before 1 January 2017, the interest rate for 2020 thus comes to 3.75%. Insureds who joined the Pension Fund Swiss Re on 1 January 2018 earn 3.21% interest on their retirement savings capital, or 2.14% if they joined on 1 January 2019. Insureds who joined the Pension Fund Swiss Re on 1 January 2020 earn 1.50% interest on their retirement savings capital in the Pension Plan and in the ER Account. For insureds who joined during a particular year, the interest rate is applied on a prorated basis.

To see how this works out in practice, please refer to the calculation examples we provide in the enclosure.

Based on this interest rate, an amount of approximately CHF 50.6 million of the surplus earned will be distributed to the insureds of the Pension Fund Swiss Re. The interest rate is valid for all those who are insureds (meaning active, non-retired members) on 31 December 2020 as well as all members who took retirement between 1 January 2017 and 31 December 2020.

In making this decision, the Pension Fund Board took into account financial market developments while also ensuring that the Pension Fund Swiss Re maintains robust fluctuation reserves so as to be well positioned to manage any future capital market turbulence.

Interest rate to be applied during the year to retirement savings capital in the Pension Plan (incl. ER account) for 2021

Due to the low interest rate environment, the Pension Fund Board will retain its cautious interest rate approach for 2021. At its meeting of 8 December 2020, the Board therefore decided to set the interest rate to be applied during the year to retirement savings capital in the Pension Plan for 2021 at 0.25%, pursuant to Art 20 item 1, letter a.

 

Definitive interest rate applied to savings capital in the Capital Plan for 2020

At its meeting of 10 December 2020, the Pension Fund Board confirmed the interest rate to be applied to savings capital in the Capital Plan for 2020 will remain at 0%, pursuant to Art 44 item 2.

Insureds benefit from a capital interest rate guarantee for the Capital Plan. This means that when the Capital Plan is paid out (for example upon leaving the company, retirement, transfer abroad, death, 100% disability), the insureds receive at least their contributions and buy-ins plus any interest awarded by the Pension Fund Board (calculated over the entire membership period). Furthermore, they can benefit from the performance of the UBS AST2 EA Kapital Plus 2020 fund. In the event of benefits being paid out, insureds will always receive the higher of the two amounts – the value of the savings capital or the value of the fund units. This means that insured members have no risk of loss due to price falls, but can enjoy 100% of price increases.

 

Interest rate to be applied during the year to savings capital in the Capital Plan for 2021

Due to the capital guarantee, the Pension Fund Board decided at its meeting of 10 December 2020 to set the interest rate to be applied during the year to savings capital in the Capital Plan for 2021 at 0%, pursuant to Art 44 item 2.

A prudent approach to managing the capital of insureds and pension beneficiaries is the highest priority for Pension Fund Swiss Re.