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Survey Report

SLI® Swiss pension plan

Benchmarking study 2019

Retirement
N/A

January 9, 2020

Dear Reader,

While the political debates over how best to cope with the challenges of retirement pensions continue, the interest environment has reached new, unfortunately negative record levels. Pension funds must face these realities and work with associated plan sponsors to continually develop new solutions. The leeway for drastic evasive manoeuvres is steadily decreasing, which is reflected in the results of this study.

Although conversion rates, for example, have undergone a long, steady decline, the recent reductions in the interest environment have not yet been factored in. Accordingly, the all-clear cannot yet be issued on this front. The redistribution from active insured members to pensioners continues unchanged. Despite all efforts in this regard, market interest rates remain approximately 0.5 % lower than the implied technical interest rates used to calculate the conversion rates.

The trend within the Swiss Leader Index (SLI®) companies shown in this study is essentially in line with the development we have seen in the overall market. Nevertheless, employer savings contributions, for example, have continued to increase over the last six years, in part due to a reallocation of risk contributions to savings contributions and in part owing to an effective increase in total contributions. This shows that companies and their pension funds are fully prepared to partially counteract a decline in the pension benefit level. They consider it a priority to secure a reasonable level of income for their employees even after retirement. Such compensations of supplementary contributions often occur in contrast to what can be observed in the market (and in particular in the area of collective foundations), where ongoing reductions in conversion rates are often communicated as a unilateral decision without accompanying measures.

Here, the joint efforts of companies together with their pension funds seem to generate real added value for insured members. From the companies’ perspective, this also raises the question of whether higher savings contributions (especially in the younger years) represent the optimal benefit for millennials, who tend to change jobs more often.

It should also be emphasised that the trend of further restricting pension benefits to reduce risk also continues, in addition to the conversion rate reductions. In particular in the last two years since the change in the relevant legal regulations, other SLI® companies have introduced a so-called DC 1e Top-up pension plan. This trend is also likely to continue.

Apart from many similarities, however, this study also reveals considerable differences between the benefits of individual pension funds. The retirement benefits of one pension fund may still be more than twice as high as those of another. This marked differentiation is due to a wide range of design differences that are examined in detail in this study.

The interest rate applied to the retirement assets of actively insured members has fluctuated significantly in recent years, depending in particular on developments in the asset markets. For example, in 2017 decidedly positive interest rates were applied as a result of the strong market performance, whereas in 2018 this was no longer possible for most pension funds due to poorer returns. On the whole, the last five years saw a pleasingly high average interest rate on retirement assets, which was also considerably higher than the BVG minimum interest rate. In view of negative interest rates as well as lower return expectations in the investment markets, it is doubtful that this trend will continue in the coming years. It is reasonable to assume that on average interest rates will unfortunately come very close to the politically supported BVG minimum interest rate.

We hope you find this an interesting read.

Authors

Head of Switzerland
Director of Retirement Services Switzerland

Head of International Valuations

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SLI Pension Benchmarking Study 2019 PDF 1.9 MB
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