Last update: 17.09.2024 08:34
The latest pension fund study shows that the 2nd pillar is running out of money. The pension funds have taken measures to secure our pensions – but at a lower level. In particular, incomes over CHF 78,000 will receive less under this system. Those who earn more should make their own provisions.
Every year, Swisscanto produces a comprehensive study in which 535 pension funds with 4.1 million insured persons and almost 700 billion in assets under management provide data. The study represents the situation of occupational pension provision in Switzerland. This is what we have learned from it:
The central problem of the second pillar is increasing life expectancy
In recent decades, the remaining life expectancy after retirement has risen and the birth rate has fallen. In the last 30 years, the average length of retirement has risen from 14 to almost 20 years for men and around 23 years for women. In addition, almost 60 % of insured persons retire on average 1.5 years before the normal retirement age. As a result, 2.3 working people will have to finance one pensioner in 2035.
Longer pension entitlement period leads to falling new pensions
Your retirement assets in your pension fund are converted into a pension using a conversion rate. The higher the conversion rate, the higher the pension on your retirement capital. The following currently applies: you receive a pension of CHF 6,800 per year on CHF 100,000 of retirement capital. For life. This conversion rate of 6.8 % has applied since 2008, although the length of time you can draw your pension has increased in the same period. This means that the pension benefit has been increased. Perhaps not intentionally, but de facto. At least for all those who have already retired or are about to retire. On the other hand, the pension funds have earned less on their investments in recent years, which still consist to a substantial extent of bonds. As a result of the de facto expansion of pensions and falling returns, the gap between pension obligations and the long-term, realistically achievable return on capital for pension funds is growing.
- The application of lower conversion rates to extra-mandatory assets, which leads to lower pensions
- The use of period tables instead of generation tables to take account of increasing life expectancy, which reduces the coverage ratio
- The reduction in the technical interest rate to the current average of 1.98 %. The lower the technical interest rate, the more cautiously the fund calculates and the more provisions it sets aside today for future pension obligations. A reduction reduces the redistribution from active insured persons to those already retired, leads to lower pensions for new pensioners and thus increases the coverage ratio
- The abolition of AHV bridging pensions for people who take early retirement, which means a reduction in benefits
- The promotion of lump-sum withdrawals instead of pensions, which leads to a transfer of longevity risk to pensioners
Enveloping conversion rates are below the BVG conversion rate
The enveloping conversion rate is an average conversion rate for mandatory and non-mandatory plans. In 2017, this was only 5.83 % on average for pension funds. This is around one percentage point below the statutory requirement for mandatory assets. And this is already below the value of 6 % that was still the political target in the failed AV2020 proposal. This means that you will receive a pension of CHF 5,830 for every CHF 100,000 in retirement assets.
Active insured persons finance excessively high conversion rates with lower returns
Today, the current conversion rate of 6.8 % means that current and new pensions have to be financed with excessively high claims. In order to maintain this rate, pension funds would have to generate a permanent return of 5 % on their investments. However, pension funds expect an average return of only 3.0 % on their assets, and around three quarters even expect a return of less than 3 %.
As a result, the pension funds have no choice but not to credit the annual income of active insured persons to their accounts, but to use it as transfers to cover current pension obligations. The insured persons’ investment income is therefore not credited in full to their individual accounts, but is redistributed to the pensioners of the respective pension fund. This effect is all the more pronounced the greater the individual’s retirement assets and the greater the proportion of pensioners in the pension fund. In addition, the pension fund lacks the funds to build up a fluctuation reserve. This means that in the 2nd pillar, as in the 1st pillar, there is an annually increasing redistribution.
2017 was a very good investment year: the average investment result on fixed assets was 7.6 %. Well over half of the participating funds generated more than 7.5 %. The good performance of equities meant that this asset class replaced bonds as the largest portfolio position for the first time, accounting for just under one third. The extraordinarily good return allowed higher interest to be paid on the retirement assets of active insured persons – at an average of 2.7%. The remainder was used to increase the fluctuation reserves and transfer payments for current pensions. Income and high price gains on investments thus contributed to around two thirds of the growth in pension fund assets, with the remainder coming from employee and employer contributions. However, the good share price performance masks the problem of extremely low nominal interest rates.
The performance target has fallen by 9% points in the last 5 years
What gets to the heart of your expected pension situation is the feedback from the pension funds in the study on the performance target for a salary of CHF 80,000. Remember: an annual salary of 78,000 francs corresponds to the Swiss average. The benefit target describes the percentage pension level from 1st and 2nd pillar at the time of retirement in relation to salary. The benefit target fell further to 71 % in 2017. Although this is still above the overall replacement rate of 60 % informally targeted by the AHV and BVG, it has fallen by 9 % points in the last 5 years. Put simply, for an average salary of CHF 80,000, the pension level has fallen by 10 % in the last 5 years.
Summary
What does that mean for you? If you earn more than 78,000 francs, you can assume that you will be affected even more by the cuts. Take a look at how much money you will need in retirement and take your pension provision into your own hands. After all, it is practically inevitable that pension benefits will fall due to increasing life expectancy.
Mach den ersten Schritt zur finanziellen Unabhängigkeit
In einer Minute siehst du deine Vermögensentwicklung und dein Einkommen während der Rente.
