The guaranteed rate of interest earned on retirement savings can change from year to year. That is why the future trend in retirement savings cannot be predicted with precision. As a result, in order to extrapolate the potential future retirement benefits, it is necessary to make assumptions about the interest earned until retirement. This hypothetical figure is termed the "projected interest rate".
The projected interest rate is for information purposes only. The (projected) potential retirement benefits extrapolated using this figure offer insured persons only a rough guide to the amount of their later retirement benefits. Given the, in some cases, very long investment period – depending on the insured person’s age, their retirement may be very far in the future – the projected interest rate reflects the expected interest earned on the retirement savings from today’s vantage point.
It is the task of the employee benefit institution’s board of foundation to determine the projected interest rate. The board members base their decision on past experience as well as on expectations of future interest-rate trends. As the projected interest rate is always based on a long-term view, it is kept stable for as long as possible. That also avoids sharp fluctuations in the potential retirement benefits communicated to the insured persons in their annual insurance certificates. Despite all efforts to keep the projected interest rate stable over the long term, it may need to be adjusted. That is the case, for example, when the interest-rate trend reverses.
The shorter the period until a person’s actual retirement date, the more likely the effective interest rate for retirement benefits will diverge from the long-term projected interest rate.
In its insurance certificates, Helvetia shows the projected retirement benefits at ordinary retirement age along with two alternative figures (one calculated higher and one lower than the projected interest rate). These alternatives reflect the effect on retirement savings of potentially higher or lower interest rates. This means that insured persons who are set to retire in the next five to ten years receive a more specific figure for their own pension planning.
The projected interest rate must not be confused with the actual interest earned on retirement savings, given that the current investment-market trend, not the amount of the projected interest rate, is the sole deciding factor in setting the guaranteed interest rate once a year.
What is referred to as the LOB minimum interest rate is set by the Federal Council annually. As the name implies, employee benefit institutions must pay at least this amount of interest on compulsory retirement savings.