How companies are benefiting from 1e pension plans
Everyone's talking about 1e pension plans. This pension solution is a response by Swiss pension funds to calls for increased customization in retirement provisions. The opportunities presented by 1e plans were also the subject of discussions at the second Credit Suisse entrepreneur conference.
Pension funds in Switzerland face new challenges
Since the Swiss Federal Act on Occupational Retirement, Survivors' and Disability Pension Plans (BVG) was introduced in 1985, the age structure of the population has changed dramatically. The number of pensioners in Switzerland continues to grow, while the working population is shrinking. Life expectancies, too, are increasing. Pensions must be paid in line with guarantee commitments, which present a challenge for pension funds. Roland Schmid, CEO of Swiss Life Pension Services AG, and Matthias Hochrein, Chief Operating Officer of the Pension Fund of Credit Suisse Group know just what this challenge means in concrete terms. The experts put the question to the entrepreneurs attending the 2019 entrepreneur conference.
"The conversion rate is too high," says Mr. Schmid, identifying the main problem. "This has consequences that end up hitting the active participants hardest." As a result, he says, 1 to 2 percent of investment income from the employed persons is redistributed to new retirees. At the same time, in the current low interest rate, environment pension funds are having difficulties generating adequate returns. "The average potential returns on assets have shrunk by 2 to 2.5 percent," the pensions expert highlights. According to Hochrein, redistribution is reducing interest rates for the active insured,
and the redistribution effect, which is at odds with the system, is putting pressure on the sense of solidarity within society. "Young people in particular are asking: just how much of my efforts am I actually going to see when I reach retirement age?" he says. Mr. Schmid agrees: "We're seeing a reduction in a sense of solidarity toward increased individuality." Within this context, 1e pension plans are becoming increasingly significant.
How the introduction of 1e pension plans works
Companies must take several factors into consideration when deciding whether to introduce a 1e pension solution. This is because a 1e plan must work for both the company and its employees. As 1e plans are investment-based, a longer investment horizon is beneficial. As a result, 1e solutions tend to suit companies with an age structure that is relatively young. The income structure also plays a role: Does the company have employees with a total annual remuneration of more than CHF 127,980? Only this portion of the salary may be insured as part of a 1e plan.
To determine whether this framework suits the company, the current situation must be analyzed: What pension solution is already in place? Is there an all-encompassing solution alongside which a 1e plan is to be offered? Or is there already an additional executive solution being replaced by a 1e plan? The current situation will determine the introduction of a 1e plan. If a company has its own pension fund, a 1e solution could be established from this in a separate foundation. A less costly alternative would be to set up a 1e plan through a collective foundation.
1e pension plans make retirement provisions more profitable
With the establishment of 1e plans, the situation surrounding workplace pensions in Switzerland has taken another step toward individuality. On the one hand, this increases the chance of increased retirement assets for the insured, while on the other hand, companies are able to exclude shortfalls and enhance their employer appeal. This makes it worthwhile for companies to assess whether a 1e pension solution is a viable option.