Last update: 17.09.2024 08:35
Every pension fund must always be in a position to meet its obligations to its insured members. A simple indicator shows whether it is able to do so: the coverage ratio. It shows the ratio between the assets and the obligations of a pension fund. Underfunding means that the funding ratio is less than 1. This means that the pension fund’s existing assets are not sufficient to cover all current and future obligations.
A shortfall exists if the available pension assets are less than the actuarially required pension capital on the reporting date. Or to put it more simply: the coverage ratio is less than 100%. Or even simpler: the fund does not currently have enough assets to pay all future insurance commitments in full in addition to the current ones. A temporary shortfall is permissible if your fund meets its current obligations. In order to remedy a permanent shortfall, the fund must take restructuring measures in accordance with the BVG. These are temporary measures to eliminate the underfunding within five to seven years.
Such measures are usually initiated when the coverage ratio falls below 90 percent. There are a number of possible measures. For example, it is possible to
- adjust the investment strategy,
- adjust the financing,
- to reduce future benefits,
- to lower the conversion rate,
- reduce the interest rate on retirement assets,
- or encourage the employer to make special contributions.
Finally, restructuring contributions may also be levied from the insured persons if other measures do not lead to the desired result. Only when restructuring contributions are levied from the insured persons will you feel the shortfall in your fund with higher deductions from your monthly salary.
You can find out more at the Federal Social Insurance Office.
