Pension funds invest the pension assets of all insured in line with a uniform investment strategy. As a result, employees cannot fully exploit the potential returns for their own pension capital. This is not the case with 1e plans. In contrast to the traditional pension model used in the second pillar, 1e plans can be personalized: Those insured under 1e plans can choose their own investment strategy. For salary components in excess of CHF 132,300, pension funds may offer their insured a pension plan with a choice of up to ten different investment strategies. At least one of these strategies must have a low risk profile.
An analysis of anonymized data from the Pension Fund of Credit Suisse Group (Switzerland) shows that the needs of insured vary significantly. For example, the strategy with the highest risk, with a 75% equity component, was the second most frequently chosen strategy. There is also a clear difference in investment behavior with regard to assets in 1e plans. People with a large amount of assets chose a higher equity component significantly more often, while people with very few assets often did not make a decision in 1e, which automatically leads to a low-risk investment strategy. 1e plans allow insured to implement their individual preferences accordingly. The risk tolerance varies depending on the individual asset situation, investment time horizon, and gender. For example, women are less likely to opt for an investment strategy that involves high risk. Conversely, a trend toward choosing strategies with a higher risk profile can be observed among men.
The advantage of 1e pension plans – in addition to the individual choice of investment strategy – is that insured participate fully in the investments. This means that they have much greater return potential if financial markets rise over the long term. However, this also means that insured bear the investment risks themselves.
It's not only the insured in the 1e plan that benefit: There are also advantages for companies. As the insured bear the investment risk, it is not possible for the extra-mandatory pension plan to be underfunded. For companies, this correspondingly reduces the risk provisions (pursuant to IAS 19), which tie up equity capital. By introducing a 1e pension plan, they can remove their restructuring obligation for salary components insured in the 1e plan and therefore possibly release equity capital when such a plan is introduced. 1e pension plans are especially suited for entrepreneurs looking to use their own pension provision as part of their withdrawal strategy. They can benefit from the tax advantages afforded to pension provision without losing the freedom of choice over the investments.
Personalized employee benefits insurance in the form of a 1e pension plan is becoming increasingly popular. The retirement assets insured through 1e plans increased fourfold between 2015 and 20201 . Surveys of Swiss 1e foundations carried out by PwC in 2021 suggest that this development is likely to continue in the future. Specifically, the foundations expect annual growth of 17% and an increase in assets in 1e plans to around CHF 9.3 billion by 2026.
In the long term, the 1e market should continue to grow. The total potential for 1e pension plans is currently estimated at around CHF 65 billion 2 . The current challenges of employee benefits insurance are also unlikely to stand in the way of 1e pension plans. On the contrary, 1e plans are even likely to benefit from this because of their personalized nature.