New pension fund regulations and adjustment of the conversion rate for a healthy 2ⁿᵈ pillar in the long term.
The redistribution from actively contributing members to pensioners will be reduced by the Foundation Board of the Profond Pension Fund by lowering the conversion rate for 2023 and 2024 by 0.2% in each year. Under the new pension fund regulations, it is now possible, among other things, to request an amount for the purchase of a new home under the home ownership scheme until ordinary retirement age.
The 2nd pillar is a central pillar of retirement provision in Switzerland. It makes an essential contribution to financial security in old age, in the event of disability and in the event of death. However, due to increased life expectancy, retirement pensions must increasingly be co-financed by the actively contributing members. This does not correspond to the actual plan for one’s own savings in the 2nd pillar. Reforms are needed to correct this development. But the political reform process has been stalling for years – to the chagrin of the younger insured.
The demographic reality is exacerbated by the persistently low interest rate environment. When combined, these two factors are leading to a steady increase in the annual redistribution from actively contributing members to new pensioners. As a pension fund, however, we have an equal obligation to all insured persons – active members and pensioners.
Securing the pensions of our insured persons sustainably and in the long term
The reduction of the conversion rate is necessary to ensure the financial balance of the 2nd pillar in the long term. For 2022, the enveloping conversion rate is 6.0%, in 2023 it will be 5.8% and in 2024 5.6% (age 65 in each case). This ensures that the retirement pension is at least 6.8% of the compulsory BVG retirement assets.
With this moderate adjustment of the conversion rates, we are reducing the redistribution from actively contributing members to new pensioners. This is because life expectancy is increasing, meaning that a retirement pension must be sufficient for more and more years of life.
Compensating for the reduction in the conversion rate in the long term
Thanks to our real value strategy, we have been able to generate high returns on a regular basis and therefore offer our insured a good additional interest rate on their retirement assets (the award for the highest interest rate over 10 years). This has partially compensated for the unequal treatment of actively contributing members and pensioners without negatively affecting their long-term financial security.
We also offer our insured persons the option of either making purchases, provided they have purchasing potential, or paying in more savings contributions to compensate for the reduction in the conversion rate. We also offer employers the option of setting up a pension plan with higher savings contributions.
The most important changes in the pension fund regulations 2022
The duration of the early withdrawal option within the framework of home ownership promotion is being extended
The previously valid three-year period is being done away with. An insured person may now request an advance withdrawal of benefits to finance residential property for own use (purchase and construction of residential property, holdings in residential property or repayment of mortgages) until reaching regular retirement age, provided no insured event has occurred (Art. 49(1) of the pension fund regulations 2022).
Taking into account salary changes during the course of a calendar year
All salary changes (including those during the year) can now be taken into account immediately after notification or on the first day of the next month. The previously mandatory taking into account of salary changes during the course of a calendar year only from 1 January of the following year has been discarded.
Art. 9(9)
This clarification may have an impact on the salary systems of our affiliated companies.
Introduction of a progressive pension scheme
The introduction of the progressive pension system of the Swiss Federal Disability Insurance will also be adopted by Profond for supplementary or enveloping cover in the same way as the Swiss Federal Disability Insurance, without a transitional period:
Art. 31(2), Art. 31(6), Art. 33(a)(2), Art. 33(b)(2)
Payout/security of pension assets in case of failure to meet the maintenance obligation
Persons who do not meet their maintenance obligations (e.g. alimony owed for children) should be prevented from withdrawing capital (lump-sum payment instead of retirement pension, cash payment of the termination benefit, early withdrawal for home ownership promotion) from their occupational pension scheme and from disposing of the money unnoticed.
Art. 39(1)
New pension fund regulations
Our new pension fund regulations will be published on our website from 26.11.2021.
Further changes in the pension fund regulations 2022:
In the pension fund regulations 2022, we now take into account a Federal Court ruling according to which the pension protection acquired with the termination benefits paid in may not be reduced even in the event of a breach of the duty of disclosure.
Art. 8(11)
Income from part-time work is no longer be excluded from the insurance.
Art. 5(3)
Seasonal workers are treated the same as insured persons on unpaid leave in that no termination is processed and the salary is continued at CHF 0.
Art. 5(3) and Art. 7(1)
In the case of unpaid leave, in addition to the maximum duration of two years, a minimum duration of one month is also specified.
Art. 7(4)
The insured person can now choose between voluntary continuation of the insurance upon leaving after reaching the age of 58 and external membership.
Art. 7c(1)
A distinction is now only made between fluctuating and non-fluctuating income. Other definitions leading to misunderstandings have been discarded (Art. 7b(3), Art. 7c(3), Art. 33(a)(1), Art. 33(b)(1)).
For internal transfers of insured persons from Employer A to Employer B (both employers affiliated with Profond), the retirement assets for both pension relationships will earn interest at the regulatory interest rate.
Art. 15(6)
It is clarified that in the case of partial retirement the amount of the retirement capital withdrawn early (lump sum or pension) must in each case correspond to the percentage reduction in the level of employment.
Art. 19(1) and (3)
It is clarified that salary components of insured persons received from two or more employers affiliated with Profond may not be added together and insured. Each employment relationship is treated separately.
Art. 9(2)
It is clarified that the actuarial report of the occupational pension expert is produced annually.
Art. 53(2)
FAQ for insured persons
- Modern pension plans today have up to three different savings elective plans. Check with your employer to see if your employer’s current pension plan provides for such a solution. If so, you can switch to one of the higher savings elective plans, thus increasing your personal monthly savings contributions and in turn your retirement assets.
- Increase your personal retirement assets with purchases; this has a positive effect on your retirement pension. Your personal pension certificate will show whether you have any purchase potential. Incidentally, the contributions are tax-exempt and can be deducted from your income.
During your working life, you save up a personal retirement capital through monthly contributions from you and your employer. These retirement assets are converted into a life-long retirement pension at the conversion rate. An example: With retirement assets of CHF 500,000, a conversion rate of 5.6% results in an annual pension of CHF 28,000.
The monthly contributions paid in jointly by you and your employer during your employment or insurance period together form your personal retirement capital. This capital grows with each monthly payment and can be further increased by additional purchases. Profond pays interest on your retirement capital and in turn credits the interest income generated to your retirement assets.
Over the years, this will form the basis for your retirement pension from the 2nd pillar.
At Profond, we follow the principle: same age = same conversion rate.
Thus, at the age of 65, women have the same conversion rate as men. Since the ordinary retirement age for women is currently 64, the conversion rate is correspondingly somewhat lower. If the retirement age of women is raised to 65, the same conversion rate applies to both sexes.
At the time of retirement, your saved retirement assets are multiplied by the conversion rate. The retirement pension calculated from this is paid out for life.
No. You will receive the retirement pension shown on your pension certificate for 2021.
Current retirement pensions are not affected by these measures and remain unchanged.
In 2022, the conversion rate at age 65 is 6.0%, i.e. to finance one franc of retirement pension, taking into account life expectancy and future interest rates, your pension fund must provide CHF 16.667 (100 : 6.0). In the case of a lump sum, the actuarial risk (life expectancy) of the insured person is transferred.
If you draw the retirement capital instead of the life-long retirement pension, the actuarial risk of life expectancy is transferred to you. Thus, not only do you have to invest the capital yourself, but you also have to be able to live with the capital in such a way when you exceed the statistical age.
Advantages:
- Heritability
- Investment based on one’s own skills and risk tolerance
- “Financial independence”
- Generation of high returns in economically prosperous times
Advantages:
- Asset management expenditure
- Financial risks with regard to:
o capital investments (price losses in economically bad times)
o reaching a high age (actuarial risk (life expectancy) is
o transferred to the insured person)
o elimination of the spouse’s and orphans’ allowance
o absence of a possible cost-of-living adjustment
Advantages:
- No administration expenses (investments)
- No financial risk with regard to:
o capital investments
o reaching a high age (actuarial risk (life expectancy) remains with Profond)
o surviving spouses and orphans
o possible cost-of-living adjustment
Advantages:
- Lack of heritability (if the insured person dies, the surviving spouse only receives 60% of the retirement pension)
- No possibility of structuring the investment