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Negative interest rates threaten Swiss pensions

Big Al
March 9, 2015

Sent to us by our good friend Glen Downs. Some more great articles can be found at the Swiss Info website by clicking here.

The Swiss National Bank’s removal of the minimum exchange rate of CHF1.20 to the euro in January and institution of negative interest rates could have grave consequences for Swiss pensions, say economists from the largest Swiss bank, UBS.

The UBS economists analysed the potential effects of a variety of interest rate scenarios. The results show burdens on the real economy, significant interest rate risks, additional pressures on banks to consolidate, and a serious impact on pension funds, UBS announced at a press conference on Friday.

“It is at least as serious for the economy as ending the floor to the euro, and could even be more serious,” said Lukas Gähwiler, head of UBS Switzerland, in reference to the long-term impact of the negative interest rate environment.

With its discontinuation of the franc-euro exchange rate cap, the SNB cut its target three-month Libor interest rate by an additional 50 basis points, to 0.75%. Immediately afterwards, the entire yield curve for Swiss government bonds with terms of up to 16 years fell into the negative, the analysts found.

The effects of the increase in value of the Swiss franc and of negative interest rates are complex and have no relevant precedent, said UBS.

Consequences for social insurance

One potential area that could be hard are pension funds, including both government and vocational pensions, the study found.

Guidelines for vocational pension funds already limit the amount that can be invested in assets with high returns. If the Swiss National Bank continues to offer negative interest rates, many pension funds would become increasingly underfunded, and an increase in individual contributions may be necessary in order to finance payments to retirees.

Financing of government pensions could also become a problem. Lower interest rates will increase the gap in government financing of old-age pensions – already more than CHF1,000 billion ($1,024 billion) before the SNB’s introduction of the negative interest rates. In a scenario with low interest rates and a weak stock market, the money in the pension compensation fund could be depleted by the year 2024, the UBS analysts calculated. In a situation with higher interest rates and positive equity market performance, the compensation fund would be sufficient to fund excess expenditures until 2028.

Discussion
38 Comments
    CFS
    Mar 09, 2015 09:03 AM

    The existing universal financial repression of keeping interest rates low threatens the lifestyle and economic viability of ALL older people. (Not just in Switzerland, but throughout the developed world.)
    It is a sneaky form of hidden taxation.
    It forces people, who are desperate to maintain investment income levels, to take ever increasing risks, which must sooner or later end in loss to the individual, perhaps destroying lifestyle.
    And Governments wonder why intelligent people increasingly distrust these thieving politicians. Because they, for the most part, are self-enriching scum.
    Just my opinion.

      CFS
      Mar 09, 2015 09:25 AM

      Did you listen to the divisive speech by Obama in Selma?
      He praised the March on Selma tragedy as having forced enlightenment of the white people (my words) to give scholarships to Black Africans, of which his father was one. This enabled his father to come to the Us and meet and marry his mother and for him to be born.
      Slight problem there with the truth Mr. Lying President.
      I know you think the American people are gullible and dumbed down, but the Selma march was in 1965 and you were born in 1961in Hawaii, so you tell us.

      Just like Hillary Clinton, who tells us she was named after Sir Edmund Hillary, climber of Everest; who, in fact, was pretty much unknown at the time of her birth and climbed Everest years later.
      Hillary, commodity trader extraordinaire, who never lost money in the cattle futures market, so she gave up trading.
      Hillary, who has claimed to have turned over all her emails to Congress (55,000 pages); who despite being pictured typing into her blackberry in Libya, apparently sent or received zero emails on her visit to Libya. Believe it, or not. ? ….. LIAR.

    Mar 09, 2015 09:32 AM

    The fun in the sun for retirees is not looking good .

    CFS
    Mar 09, 2015 09:36 AM

    I look on the bright side. I will probably die in the Revolution trying to make America better for future generations; if I live long enough for the Revolution.

      Mar 09, 2015 09:43 AM

      Drink fresh water, eat lots of veggies(organic, you can afford it), get 20 min. of sun shine(or Vit D) a day, cut out the sugar, stay away from gmo foods, and stop worrying , oh, and get light exercise daily( take a walk)…..and you will be fine, you’ll will most likely hit a 100, with all your cash.

        Mar 09, 2015 09:45 AM

        sorry….you’ll should be you…..I have to watch my spelling the magpie is watching.

          Mar 09, 2015 09:07 PM

          I make so many typos whenever anyone else makes one I get a royalty! 🙂

          I must make Mr. Birdman cringe…some of my more famous typos:

          Anus when I meant Angus (accidentally left out the g)
          Mr. Big Al Korline
          Mr. Big Al Korloon
          And the most famous….The Corleone Economics Report 🙂

          Mar 09, 2015 09:08 PM

          So I thought you said you no longer use a ‘puter and were not using a conventional keyboard….what do you use now…tablet?

        Mar 09, 2015 09:02 AM

        Good advice. Personally I add a couple tsps. of apple cider vinegar and a couple tsps. honey to that fresh water. Keeps ones system off the alkaline side!

      Mar 09, 2015 09:23 PM

      How can you participate in the revolution if you have already departed America, CFS?

    CFS
    Mar 09, 2015 09:42 AM

    http://www.washingtontimes.com/news/2015/mar/3/frank-gaffney-jr-us-backed-rebel-reportedly-leads-/

    Sarcasm on…..
    It’s a good job Obama is bombing the h*ll out of ISIS
    Sarcasm off.
    .

    CFS
    Mar 09, 2015 09:47 AM

    You tell ‘m Manuel:
    http://www.jpost.com/International/French-PM-warns-that-10000-Europeans-may-swell-ISIS-ranks-by-end-of-2015-393276

    But don’t condemn Islamic radical clerics in France.

    Mar 09, 2015 09:49 AM

    Have you guys ever been to Switzerland – they put a whole new meaning on SMUG.

    Gee, everything is so ludicrously expensive there. Accomodation, food, eating out in restaurants

    The Swiss need foreign workers to work in their banks and yet they make it so darn difficult for people to go and live there… and when they do they discover that most of their fabulous banking salary goes on accomodation and eating… and taxes of course. I know people who work in Switzerland but who live just across the border in France for the above reasons.

    Why is Switzerland like this? Because they are so smug at being the banksters for the Nazis and everyone else dodgy who has wanted to hide money and/or avoid tax in their own countries since WW2… and no doubt before.

    It couldn’t happen to a nice bunch of people… unless it was to those even smugger lot in Luxembourg 🙂

    CFS
    Mar 09, 2015 09:02 AM

    Sure I’ve been to Switzerland many times. Not recently, I admit, because it is expensive.
    But it is clean and you could set your watch by the buses and trains, that run mostly to within a few seconds of published times. (Contrast that to England, where they always seem to have “track repairs” and bus me between stops when I take an English train. And you want to talk expensive…..what about English trains, if you don’t have the luxury of booking months in advance?

    CFS
    Mar 09, 2015 09:13 AM

    LPG and others:
    Here’s a Muslim I agree with:
    http://www.youtube.com/watch?v=Ry3NzkAOo3s

    I think Brigitte’a estimate of radicals is high, but she articulately states that which I have failed to do in this forum.
    The failure of Muslims to speak out against radical muslims, especially radical clerics who are doing the radicalization.

    Mar 09, 2015 09:03 PM

    Real negative interest rates are pure theft.

      Mar 09, 2015 09:06 PM

      ditto

      Mar 09, 2015 09:35 PM

      Sorry Ebolan, but they (negative rates) are not theft in the way you suggest. Not even close.

      I have been repeatedly pointing out to you guys that the interest rate cycle is a multi-century phenomenon and it therefore has absolutely nothing to do with any living individual or organization modifying the curve today.

      You might think I am just joking but I strongly encourage you to go and look at the chart yourself and make an honest attempt to reconcile the facts with your own ideas. The long rate cycle is the most important piece of information we have as market watchers to begin divining what is to come.

      I have reprinted the long term interest rate chart innumerable times in the past two years on this site and have NEVER had a single response to what I wrote. Nobody believes their own eyes! Incredible…..So I am pretty much alone in drawing conclusions as a market historian.

      You really need to look at the information from a different perspective to draw better conclusions. This data is actually quite well known within the bank community at high levels but for some reason is an improbable mystery to the man on the street. So don’t blame the current group in power because they really have much less influence than most believe.

      Why nobody wants to talk chart facts is beyond me. Just read the data and learn. That is all I can say to help you. The answers are all there in plain bloody sight for anyone with a curious mind and and a will to understand and it is how I know beyond a shadow of a doubt that we are heading into an epic depression.

      It is also how I know we cannot escape the meltdown that comes at the end of each major credit cycle. Negative rates tell us something of consequence but it is not about theft, it is about endings and rebirth.

      Get that and you will be further ahead than most.

        Mar 09, 2015 09:16 PM

        I guess financial repression is just a myth.

          Mar 09, 2015 09:17 PM

          And of course our rulers would never do this….

          “However, when financial repression produces negative real interest rates (nominal rates below the inflation rate), it reduces or liquidates existing debts and becomes the equivalent of a tax—a transfer from creditors (savers) to borrowers, including the government.”[2]”

          Mar 09, 2015 09:50 PM

          good one……………

    bb
    Mar 09, 2015 09:11 PM

    I have to admit Bird, I doubt I have looked at any chart you have posted, I actually don’t look at charts anyone posts.
    I have little Idea how people see in them what they do.

      Mar 09, 2015 09:39 PM

      OK. Not a big surprise. That’s why most of them never get it sorry to say.