"1e" Pension Plans in the Second Pillar Are Becoming More Attractive
An amendment to the Federal Act on Vesting in Pension Plans may push "1e" pension plans of pension funds. The National Council and the Council of States have decided on an amendment to the law, which comes with more responsibility and additional investment opportunities for the insured.
Most people hold the majority of their assets in their pension fund. But since 2006, they have been able to have a say in the various investment strategies in the extra-mandatory area. However, this opportunity only became possible for a pensionable annual salary of CHF 127,980 or higher and if the pension fund so permits. These plans are called "1e" pension plans because they refer to Article 1e in the Ordinance on Employee Benefits Insurance (BVV2). Due to legal obstacles though, demand was still limited until now.
No Longer a Legally Guaranteed Amount on Leaving
What this means in concrete terms: Up until now, the Federal Act on Vesting in Pension Plans specified that anyone leaving their pension fund be paid a minimum amount guaranteed by law in any event. However, if an investment strategy chosen by the insured resulted in a loss, the pension fund had to cover the shortfall at the expense of all the parties insured in the relevant pension fund. It is hardly a surprise that this solution has seen only little interest at pension funds.
But this is about to change. At the end of 2015, the United Chambers of the Federal Assembly decided to amend the Federal Act on Vesting in Pension Plans. The motion was already accepted by both the National Council and the Council of States in 2008. But only in 2016 was the corresponding legal text implemented and now, as of October 1, 2017, the Federal Council has also implemented the necessary adjustment to the corresponding implementing ordinance BVV2.
New Protection from Low-Risk Investment Variant
With the adjustment, a pension fund will only have to pay the actual value of the retirement savings invested in securities to its 1e customers at the time of leaving. And to ensure that the insured continue to enjoy protection, pension funds will have to at least one variant with low-risk investment strategies in their product range. The pension fund will also have to provide information about the risks and costs, which has to be confirmed by the insured in writing.
According to industry representatives, the "1e" pension solution will thereby become a lot more attractive. Experts are of the opinion that with greater personal responsibility and the more lucrative investment options, interest in this pension solution will also increase.
Strategy Can Be Adjusted
Their great flexibility make "1e" pension plans attractive. Whether a conservative or a riskier investment strategy with better return potential is chosen, it can be changed multiple times and adjusted to the current situation. Depending on the pension fund, it is possible for there to be up to ten different investment strategies to choose from. With a shorter investment horizon before retirement, for example, switching to lower-risk investments may be a sensible move. In addition, the insured can individually define their employee contribution and the death and disability benefits within the framework of the law and the pension fund's regulations, for instance to protect their family in the event of death or earnings incapacity.