Swiss bank UBS is free to set whatever bonuses it likes this year, in contrast to 2008 when it needed government approval for variable pay because of a rescue package, Swiss weekly Sonntag reported on Sunday.

We have not received any such instructions from the federal council for 2009, the paper quoted Alain Bichsel, spokesman for the Swiss Financial Market Supervisory Authority Finma, as saying.

The paper said Justice Minister Eveline Widmer-Schlumpf had accepted a promise from the bank, when negotiating the rescue package last year, that UBS would introduce a new remuneration system this year.

What bonuses will be possible will emerge only in 2010, but it would make it possible for the bank to increase pay for investment bankers immediately, the paper said.

Last week, UBS, the world's largest wealth manager in terms of assets, said it was raising the salaries of some investment bankers to guard against poaching by competitors.

As in other countries, the pay policies of companies that have needed state support have become a sensitive political issue.

Switzerland's upper house of parliament, the council of states, is considering a motion on Wednesday that would limit UBS managers' pay to the level of people in state-run enterprises, whose bosses typically earn 600,000-700,000 francs ($550,000-645,000) a year, the paper said.

(Reporting by Jonathan Lynn; Editing by Dan Lalor)

($1 = 1.084 Swiss francs)