Redistribution of occupational pension schemes hits medium-sized businesses particularly hard

The Swiss pension system has long been a well-rehearsed trio: AHV, pension fund (PK) and 3rd pillar made a stable whole. The AHV with its solidarity “All save for all”, the pension fund with the principle: “Everyone saves for himself and can keep what he has saved” and the 3rd pillar as a supplement to close individual pension gaps.

But for a few years now, this system has been wavering. Because of an imbalance in the pension fund, the 2nd pillar. There are several reasons to blame: On the one hand, the demographic development. People are getting older, and at the same time the number of retirees is increasing massively. In the next few years, for example, the baby boomer generation will retire, which will further exacerbate the problem. According to the Federal Statistical Office, there could be 50 pensioners for every 100 employed people in 2040.

And as if the whole thing wasn’t already challenging enough, the fact that interest rates have been low for years and unchanged high pension promises are making matters worse. The latter has been anchored within a rigid system that the legislature specifies when setting the conversion rate since 2005. The result: The pension funds are under pressure and forced to redistribute. This means that they have to make use of the income from their retirement savings from active insured persons in order to be able to pay out their pensions to retirees. According to a study by VZ VermögensZentrum, Swiss pension funds have already redistributed over 65 billion francs in the last ten years.

What this means for the individual policyholder is unclear. Most people are not even aware that this redistribution is happening, which is why the whole thing is not perceived as a problem. If we think of the pension fund assets as a cake that we can bake and eat ourselves, then others have long since eaten.

The legal framework must be adapted

An unfairness that urgently needs to be stopped, as experts warn. “For most Swiss people, occupational pensions are the largest part of their wealth. As part of the 3-pillar system, the occupational pension is based on a generational contract that is widely accepted. If this system starts to falter, there will be an ever larger financing gap at the expense of the active employees. This hits small and medium-sized enterprises particularly hard, ”explains Sandro Meyer, Head of Pension Funds and member of the management team at Zurich Insurance, explaining the less than ideal situation.

Vita is committed to fair play in occupational pensions

Vita – the occupational pension scheme of the Vita collective foundations and Zurich Insurance provides transparent information about the current challenges in the second pillar and approaches them proactively. Vita advises entrepreneurs on the choice of the right pension solution and investment strategy, taking into account the different needs and risk tolerance.

All pension solutions follow the principle of fair play. Vita values ​​transparency in terms of interest rates and offers suitable investment strategies. This ensures that the largest possible part of the investment income benefits the insured – this is how fair play works in occupational pensions.

In order to put a stop to this, Meyer recommends various, broad-based measures, which particularly oblige the legislature. Because its too rigid guidelines are to blame for the misery. “The legal framework must be adapted to social and economic realities and the future,” the expert demands.

Specifically, the conversion rate would have to be reduced from the current 6.8 percent. Because: If the legal requirements were less restrictive, the providers – i.e. the pension funds and pension institutions – would also have more leeway. The market could play better and there would be flexibility. Important to know: A reduction in the conversion rate does not mean that the pensions will also be reduced – on the contrary: With a lower conversion rate (and thus lower promises), more interest is possible, which enables higher pensions, as the retirement capital can grow more rapidly. Current pensions would also be unaffected by a reduction.

Additional measures recommended by the expert: The savings and payment periods would have to be extended, which means starting saving earlier. Another point is more efficient investment strategies by pension funds and other pension institutions – as Zurich Versicherung and Vita are already doing within the current legal framework in order to provide the best possible performance. So that the largest possible part of the investment income reaches the insured.

Companies should also be aware that they too can make a contribution by finding out about pension solutions for themselves and their employees and looking for the right solution. This is best future-oriented and geared to the company’s performance and risk capacity in order to invest as efficiently as possible.

Sensitize the population to precautionary knowledge

In addition to these measures with regard to redistribution, according to Sandro Meyer, it is also of great importance that general pension and financial knowledge is promoted among the broader population. “So that more people understand the importance and urgency of sustainably financed solutions in private and occupational pension provision and deal with them earlier.”

In addition to the adjusting screws mentioned, each individual employee can also contribute something to improvement – by finding out more and getting involved within the company to ensure that the 2nd pillar issue is brought up. “This can be done, for example, in an employee representative body as the board of trustees of your own pension fund: by actively talking to and asking about occupational pension schemes with my colleagues and superiors.”

This is especially true so that the 2nd pillar becomes more transparent for the insured. “Pension institutions and employers can help to communicate the benefits from the 2nd pillar in a more understandable way, for example by simply explaining the pension certificates that are sent out annually,” says Meyer.

Overall, there should be more understanding and clarification on the subject of the 2nd pillar and redistribution. Meyer: “So that we can finally have more fair play again in occupational pensions.”

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