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Changes to the Pension Fund of UBS in Switzerland

Zurich / Basel Media Releases Switzerland

UBS will be making changes to its Pension Fund in Switzerland with effect from 2007. With these moves, UBS will ensure that it continues to provide its employees a competitive pension plan over the long term. The financial viability of the fund will be strengthened without the need for higher contributions from the participants.The extra contributions associated with these changes - around CHF 100 million annually - will be financed by UBS. The Pension Fund of UBS will also make a onetime contribution from reserves of approximately CHF 760 million.

The Pension Fund of UBS (PF UBS) and UBS have approved a number of changes that will take effect on 1 January 2007. PF UBS will convert the pension plan from a defined benefit plan to a defined contribution plan, adjust the technical interest rate from 4% to 3.5% and decrease the AHV coordination amount.

In taking these measures, PF UBS and UBS seek to ensure the fund's continued ability to provide competitive benefits and to guarantee its long-term financial viability. In the future, participants will be able to profit from good investment performance, but they will also acquire increased investment risk.

The adjustment of the technical interest rate makes a one-time increase in the actuarial reserve necessary and leads to an increase in future contributions. This should ensure that the current level of benefits can be maintained even if investment income is lower. PF UBS will assume the one-time cost - approx. CHF 760 million - of increasing the actuarial reserve from its fluctuation reserve of CHF 4.6 billion.

In order to avoid higher contributions by plan participants, UBS will fully finance the extra annual contributions of about CHF 100 million resulting from these changes. The income statement-related expenses to UBS for PF UBS will rise by this amount beginning in 2007. The charge was CHF 468 million in 2005.

Details of the changes:

  • The technical interest rate, which is used to value the pension fund's future liabilities, will fall from the current 4% to 3.5%. By increasing the actuarial reserve and making extra annual contributions, it will still be possible to achieve the same projected level of benefits with an average return on accumulated retirement capital of 3.5%. The onetime cost of increasing the actuarial reserve will be financed by PF UBS. UBS will assume the entire recurring costs of the extra contributions.

  • The pension plan will be converted from the current defined benefit plan into a defined contribution plan. This means that in the future the retirement pension will be determined by the contributions and the investment return achieved on the accumulated retirement capital. The new pension model is designed to provide the same retirement benefits as the current defined benefit plan, i.e. 65% of the pensionable salary on retirement. However, investment performance and changes in participants' salaries may result in these benefit targets being missed or exceeded.

    On the date of the changeover from defined benefit to defined contribution, each participant's starting capital in the defined contribution plan will be equal to the actuarial reserve needed to achieve the participant's benefit target. The changeover from defined benefit to defined contribution will not lead to an increase in the contributions paid by participants.

    Benefits in the event of disability or death will continue to be insured according to the defined benefit principle. Thus, the disability pension is 65% of the pensionable salary.

  • The AHV coordination amount will be reduced from the current maximum of CHF 34,457 to a maximum of CHF 22,575, thereby increasing the pensionable salary, as well as annual contributions and benefits. The higher contributions will likewise be assumed by UBS. The higher pensionable salary will improve capital accumulation and, consequently, future pension benefits.

PF UBS and UBS are convinced that these steps will ensure that the Pension Fund can continue to provide excellent and competitive benefits over the long term.

UBS has also decided to provide pensioners of PF UBS in Switzerland with a voluntary one-time additional monthly pension payment in April 2006, with an aggregate amount of CHF 54 million.