‘Three pillars, as early as possible’

Occupational pension provision is a recurring subject of political debate. Between the reforms of the AHV and the rejection of the adjustment of the law on the second pillar in 2024, young people sometimes doubt whether they will have a pension in forty years. Employees Switzerland regularly organises training on this topic and spoke to an expert in the field who emphasised the importance of good information and early attention in order to be able to face the future with confidence.

You regularly give courses on the subject of occupational pensions in companies. Are people generally well informed?

In our presentations for employees, it is always surprising that the knowledge of the insured persons about the occupational pension plan is rather limited, whether it be about the insured benefits or the possibilities within the framework of the 2nd pillar, such as purchases. This is surprising in that the capital accumulated in the second pillar represents the largest share of the retirement assets for most insured persons. Insured persons often overestimate the benefits they will receive in retirement. It is advisable to start thinking about your retirement income between the ages of 45 and 50; by the age of 60, the course has already been set. At Howden, we see it as our job to regularly provide our employees with a good basic knowledge of the three pillars so that they can make the best decisions for themselves.

What are the questions most frequently asked when you give a course on the subject of pensions?

The amount of the retirement pension is a prominent question. The parameters of the conversion rate, interest and retirement credits are linked to this. Questions about drawing capital to buy a house or to set up a business, for example, or about the distribution of assets in the event of a divorce are being asked more and more frequently. International mobility is also reflected in the occupational pension system in questions such as the obligation to pay social security contributions or the options for drawing 2nd pillar benefits when moving abroad.

People who have worked in Switzerland on a temporary basis often have gaps in their contributions that they can fill by making purchases. If retirement assets have been ‘lost’, the Swiss Central Office for the Second Pillar can be contacted. This institution in Bern is responsible for ensuring that dormant assets are found. There is no time limit for filing an application. One key question concerns the pension certificates and how the many figures are to be read and understood.

So, can it be said that the pension certificates are too complicated?

The pension certificates are divided into general information such as entry into the company, date of birth, marital status and salary. It is worth checking this information. Other key points on the pension certificate are the existing retirement assets, the projected retirement benefits at retirement age, the risk benefits and how they are financed.

It should be noted that the retirement benefits are calculated using a so-called projected interest rate up to the final age. This projected interest rate is an interest rate that the pension fund expects in the long term, but is not guaranteed. The values extrapolated to the final age should therefore be treated with a grain of salt.

How can the terms ‘conversion rate’ and ‘coordination rate’ be summarised in simple terms?

Each year, the employer and employees pay a percentage of the insured salary into the pension fund as defined in the pension plan. These annual retirement credits accrue interest. At retirement age, a lump sum is available. The conversion rate is used to convert the retirement capital into a lifelong retirement pension. A conversion rate of 6% means that a retirement capital of CHF 100,000 entitles the holder to a lifelong retirement pension of CHF 6,000 per year.

According to the BVG law, the coordination rate is deducted from the reported salary, since certain salary components are already insured in the first pillar. The annual retirement credits are determined from the insured salary calculated in this way.

The coordination deduction does not necessarily have to be included in the pension plan. It is possible to insure better benefits than those provided for by law.

The occupational pension system is much discussed in politics, but the successful revisions to date have only affected the AHV. What is your opinion on this subject?

At Howden, we believe in a strong three-pillar principle.

The AHV is a state social insurance scheme, where the benefits and contributions are set uniformly for all insured persons. Since the contributions are calculated on the uncapped salary, but the benefits are capped, redistribution is inherent. The AHV21 reform modernises the first pillar and introduces a uniform reference age for men and women and more flexibility in the timing of pension payments. In the last vote, a 13th AHV pension was approved by the electorate, and a next adjustment is necessary for equality in widow(er)'s pensions. However, the financing of these last two points has not yet been finally determined.

In the case of occupational pension plans, each employer is obliged to define a pension fund and a pension plan together with the employees. The BVG law, which provides for minimum benefits, serves as a basis. However, these risk and savings benefits can be improved in the pension plan. This increases an employer's attractiveness. The BVG reform was intended to strengthen the 2nd pillar as life expectancy increases and interest income decreases. The reform provided for various adjustments. One aspect was the conversion rate of 6.8%, which is too high for today's life expectancy. Other points included a simplified scale of retirement credits, an adjustment of the coordination deduction and an improvement for part-time employees and lower earners. However, the bill was very complex and was rejected by the electorate.

The BVG reform concerned the statutory portion of the BVG, i.e. salaries between CHF 22,680 and CHF 90,720 (2025). In the extra-mandatory area, providers are free to define the conditions. As a result, providers are increasingly demanding extra-mandatory savings, thus offsetting the excessive benefits of mandatory pension provision.

If you had to summarise good pension practices in three pieces of advice, what would they be?

Inform yourself in good time and in detail.

Unfortunately, people often only start to take an interest in their retirement relatively close to it. For younger insured persons, retirement planning is usually not a priority because they feel that retirement is still too far away. Inflation, a falling conversion rate and part-time work with lower insured wages all have an impact on your future retirement pension. Early retirement should also be well considered, as contributions to the first pillar are mandatory until retirement age and pensions from the first and second pillars are reduced for life if you take an early withdrawal.

Howden is convinced that it is important to regularly inform employees about the three pillars and to point out the additional savings options in the 2nd and 3rd pillars. A broker can provide targeted support to companies with employee orientation.

Seek advice from a neutral party and possibly get a second opinion.

The social security system is highly complex and decisions always have long-term consequences. One example is the decision at retirement age regarding a lump-sum payment or a pension. This decision is highly individual and must be assessed on the basis of various factors, such as family situation, other sources of income and life expectancy.

It is worth seeking advice from a neutral party such as a broker who can show the various options with their pros and cons.

Start saving in all three pillars early on

All three pillars are relevant for ensuring an adequate income in retirement. Even if it is not always possible to pay the maximum amount of CHF 7,258 per year into the private pension plan, the 3rd pillar, an additional pillar ensures a better balance. We therefore recommend that all three pillars be filled.