Four percent interest on retirement assets – how do you manage that?
Impressum: An interview from the Finance section of the “Blick” daily newspaper: Silvio Bertolami talks to Herbert Brändli, Chairman of the Board of Trustees at Profond Pension Fund, an independent collective foundation for SMEs. Interview date: October 27, 2008 from page 11 of "Blick".
Mr Brändli, can you still sleep at night?
Yes, I sleep well, but not much. We are currently confronted with numerous issues and worries that are costing us time. The financial crisis has made our insured very uneasy, and is weighing on them heavily.
But aren’t they right to be worried? After all, you invested half of your pension fund assets in shares that have fallen heavily in price.
These are simply book losses, which we are not overly concerned about. In the short term, the main thing is that enough we have enough money in our coffers. And this is the case at Profond. In fact, Profond has more liquid assets today than before the financial crisis. We are recording a substantial inflow of new funds. Our solvency, and thus pensions and vested benefits, are not at risk – despite the bad situation on the stock markets.
Due to the great number of shares, your cover ratio has fallen to under 90 percent. A cover shortfall of 10 percent or more – is this really no reason to get worried?
On this very day, our cover ratio most likely stands at under 90 percent. However, the short-term position of our cover ratio is completely irrelevant. After all, the ratio fluctuates due to turbulence on the stock markets – sometimes it is better, sometimes worse.
Why do alarm bells then start to ring at most pension funds when the cover ratio slips below 100 percent?
I consider this reaction unnecessary, even absurd. The decisive factor is that our capital stock exhibits long-term growth. For this very reason, our strategy focuses primarily on shares, not bonds. In the long term, earnings from shares are at least 3 percent higher than for bonds. Through our shares, we are co-owners of productive companies. This means we benefit from the growth of the world’s economy, and will continue to do so. In the past, the world’s economy has grown at an annual rate of 6–8 percent.
Are you still buying shares yourself?
Yes – as we still have surplus liquidity in our pension fund, we can constantly acquire stakes in good companies at highly favourable prices.
Unlike Profond, most pension funds invest primarily in bonds. What are the consequences of this?
The yields from bonds are barely sufficient to cover inflation in the long term. Due to this type of investment, the minimum interest rate has to be cut, as does the conversion rate. In contrast, our conversion rate still stands at 7.2 percent.
And what interest rate do you intend to pay on retirement assets for 2008?
I want to pay 4 percent. However, the authorities may not permit it.
4 percent interest, despite a large cover shortfall – do you enjoy living dangerously?
In the early 1990s, as a result of the real estate crisis, our performance dropped 14.5 percent and we had a cover ratio of well below 100 percent. Despite this, we were still legally obliged to pay 4 percent interest. Profond’s insured did not suffer as a result. Furthermore, we also successfully overcame the shortfall in 2002 without cutting benefits, and with no additional costs to our insured.
(Adaptation française : Yve Delaquis / caralingua.com)
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