Genevas €11.2bn Pension Fund Pleads For Double Yes In Funding Vote

The CHF12.6bn (€11.2bn) public pension fund for the Swiss canton of Geneva has called for the public to help it secure crucial funding by voting in favour of two competing proposals in a regional referendum next month. 

CPEG is the public pension fund with the weakest funding in Switzerland. At the end of December its coverage ratio stood at 58%, compared with 75% on average for Swiss public pension funds.

Unlike most of its peers, when CPEG was established in 2014 it did not receive enough financing from the canton. Under federal law, it must have a coverage ratio of 80% by 2052, but it faces falling foul of its legal obligations. Cantonal law specifies the trajectory to the 2052 target, setting targets for 2020 (coverage ratio of 60%), 2030 (66%), 2040 (72%), and beyond.  

Over the years CPEG’s liabilities have increased by CHF2bn as a result of cuts in the discount rate it uses.

According to Michèle Devaud, deputy director general of CPEG, the need to recapitalise the fund by a substantial amount – the figures given ranging between CHF4.4bn and CHF5.4bn – was recognised by all the political parties in Geneva.

“The problem is what system to put in place,” she added.

Competing solutions

In December the regional parliament passed two “contradictory” laws in the same session, Devaud said. Both targeted a coverage ratio of 75%, largely via recapitalisation in 2020 via a loan, but disagreed about potential structural reform of the pension fund.

According to Devaud, the cantonal government’s proposal was for CPEG to switch to a defined contribution system, which would lead to benefits falling by a maximum of 5%. The proposal also foresaw a shift in the distribution of contributions, with members to contribute a greater share and employers a smaller share.

The current contribution rate is 27%, two-thirds of which comes from employers and one-third from employees. 

The second proposal, on the other hand, involved sticking with the current defined benefit system without any changes to benefit or contribution levels. There were some differences relating to the repayment of the loan used to provide the financing.

According to Devaud, the second option involved the loan mainly being repaid in the form of land being transferred to CPEG, on which it could build accommodation for the local population. CPEG allocates around 30% of its assets to real estate and owns 10,000 housing units, making it the canton’s biggest landlord.

The cantonal government’s plan, meanwhile, allows for the transfer of land but does not prioritise it in the same way as the second proposal.

‘Vote for both’

Both options are the subject of a referendum to be held on 19 May, after the respective camps collected sufficient signatures against the other’s proposal.

CPEG wants to avert an outcome in which both proposals end up being rejected by voters. It has therefore issued a statement calling for them to vote in favour of both, regardless of the preference they then indicate in follow-up questions on the ballot.

“The board of CPEG isn’t taking a position on the proposals but we’re saying that the pension fund has to be recapitalised. That’s the main message,” Devaud told IPE.

“It would be catastrophic if there were a double ‘No’ because then we would have to cut benefits substantially.”

CPEG also emphasised that such an outcome would mean that the pension fund’s “financial balance” would remain very fragile and that recapitalisation at a later date would probably be necessary, with this costing more than the measures linked to the proposals scheduled for the May referendum. 

Since CPEG’s creation, active members’ future benefits have been cut by 17%. The pension fund said that if the measures it had already announced came into effect in January next year, the total reduction of benefits could go up to 27% depending on the type of member.