2nd Pillar (BVG) proposed Revision

2nd Pillar (BVG) proposed revision: passed at the national council, to be voted at the states.

  • lowered conversion ratio from 6.8 to 6.0%

  • early start of insurance at 20 instead of 25 years

  • halved coordination deduction from ~25k to 12.5k

  • change of mandatory contributions with only 2 tiers :

    • 9% from 20 to 45 years
    • 14% from 45 to 65 years
    • actually 7-10-15-18% every 10 years
  • Supplement to the annuity for those retiring in the next 15 years.

Overall I think it is a good reform . Lets see how this will go to the probable referendum…
I would have used only one contribution band, let’s say 12%, to leverage the compounding.

source

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I’m going to reject it.

Lowering conversion ratio is unacceptable. This will just have people to withdraw their capital because the annuity is not attractive anymore. And what they’re going to do next is to prohibit exactly that. And it will probably not the last lowering we will see. Once we have 6, there will be 5.5, then 5, then 4.5, etc. Salami tactics, like everywhere.

Same story with the AHV age increase for women. In theory, I would be for an equal AHV age for men and women at 65. But nevertheless I will reject it, because once it’s 65/65, there is already 66/66 in the line and then 67/67, 68/68 … no way.

Okay, but benefit is probably limited as income in this age group tends to be very low.

Seems to help people with low income …

okay, overall contributions seem to be lower, so fine.

Absolute no go. Just another attempt to make a second AHV and as such redistribution scheme. First it will cost 0.5%, then they will gradually increase it until we have a second AHV. No idea how this went through national council.

To be fair, soon-to-be retirees couldn’t make plans for this lowering of the conversion rate - and this compensates them a bit for that. Though I don’t like the additional complexity this creates. I also do believe that 6% on (only the mandatory, mind you) benefits isn’t bad.

Well, we should have or get one. Kind of.

The current AHV/AVS pensions fail at what they’re intended to be: They aren’t even providing pensions at subsistence level for median-wage earners.

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For that, we have BVG and 3a.

I think we should get rid of the AHV completely and pay 8.7% more into BVG.

I think we should get rid of BVG completely and pay 8.7% more into AHV. Why should I be forced to let other people I haven’t chosen and whom I do not trust handle my money and do such a poor job of it that it has very low returns even in good times for investors? I mean, come on, that is screwed. (Edit: they even get to exert voting rights in GAs that should rightfully be mine since they are bought with my money… Plus, they screw the real estate markets (with my money!) making it harder for me to buy a house. :wink: )

6% is good enough and people withdrawing their capital instead of taking the annuity is something we should actually want because the whole BVG scheme is meant to be people saving for their own retirement and that would maybe be the only way to get just that. Let them buy their own private annuity if they want it that badly, since government programs are so evil and private companies know so much better how to do it profitably for their clients. I’m sure the private sector will offer that 6.8% annuity that the government would want to push to 2% over the years so that people can still profit from it by taking their capital out.

… That is, if the purpose is the maximalisation of the wealth of people who know what they’re doing with money. If the purpose is to protect the people who aren’t skilled with it and make what we can to make sure they get a decent pension, easing social tensions and allowing us to keep investing in a safe and not very hostile environment, then annuities are a good thing, even if they don’t maximize my own profits.

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Wrong. Subsistence level is supposed to be provided by AHV / 1st pillar.

At less than 2400 CHF / month even for the maximum pension (that you won’t receive on a median wage) it fails to do so.

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The early start of insurance at 20 instead of 25 years will certainly avantages Swiss citizen that study here and disadvantage the foreigner workforce that join Switzerland later in life.

I think we should get rid of both AHV and BVG, but if I had to choose one, I’d pick the one that is cheaper to maintain and has better returns.

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I’d agree - provided that they’ll open up options for non-mandatory tax-privileged savings/investments. Namely pillar 3a.

Saving 6883 Francs - or 500 something a month - in Switzerland isn’t much compared to wages and cost of living. Or the limits of US 401 or British ISA (around 20k/year in their respective currencies).

As it stands today, the 2nd pillar with its decentralised nature isn’t only very expensive administratively but also seems kind of unfairly “rigged” towards the high earners with 1e plans etc.

Though less than AHV, since the system is capital-based?

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Yes sure that’s bad but the AHV is even worse. In many cases you don’t even get all the money back you paid into it, so it’s like having negative interests on your pension savings. The AHV burns your money. But actually, it’s even worse, they don’t burn your money they just take it from you and give it others, so that other people get more money from the AHV than they actually have paid. That’s not only unfair, that’s outrageous.

Right, that’s maybe even the best option. We should get rid of both the AHV and BVG, leaving only 3a as the only pension scheme, where we increase the tax deferred contribution per year to an amount that makes up for the loss of AHV and BVG. That’s the only fair solution. Nobody gets more than they paid, nobody gets less than what they paid. And you can make your own investment decisions to some extent.

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100% agree with you on that. I would be too in favor of letting the people, who have the knowledge, fully manage their own pension.

What about the gamblers or people who make poor investment decisions though? They will fall into social security and we will end up paying again for them through taxes no?

Yes, that’s a problem. The social welfare system is the root of all evil and we should get rid of it too. As long as that doesn’t happen we still need restrictions on how you can invest in 3a, e.g. limiting crypto exposure etc.

I would prefer free choice in terms of 3a investments but as long as there is social welfare, unfortunately we need certain restrictions.

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I agree - it’s a good reform for the people and bad for whoever needs to finance it. Private pension funds like the one from my previous employer have looked at the conversion rates and this is what they have communicated in 2016 (for retirement age 65):

Each year, the conversion rate will be lowered for people hitting pension age. They go lower than the federal rate as they surpass the mandatory minimum pension. I doubt very much it will stop at 6% (federal rate) or at 4.865% (for 2025 retirees my former company).

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I think it would be still cheaper than the current AHV+BVG system. Most people are not idiots or gamblers, so the required redistribution would be limited to a small minority. Currently, the redistribution runs across the entire society and AHV behemoth is just one huge waste - most people are losing money on it.

I would suggest that having a pension fund should be mandatory with a default pension strategy based on a 20/80 allocation (or something conservative like that) in order to have at least 1-2% return per year.

However, for worker who has some knowledge, or after an advisory meeting with an financial advisory (a true one or a seller, whatever), everyone should have the opportunity to choose his pension fund and to set up his personal strategy (or a default one proposed by the provider, like the one set up by VIAC or Finpension) based on his risk appetite and/or knowledge.

I also heard that maybe in the future, we would be available to chose our provider for our 2nd pillar. Maybe this would happens ?

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That’s what insurances do: take from those who don’t meet the risk insured (of exceending the life expectancy and having to finance it) and give to those who meet that specific risk. AHV is an insurance and behaves like one. That’s fine in my book and it’s actually a pretty efficient way to finance retirement.

That’s miles better, in my book, than a scheme advertised as being the result of your money accruing where what’s presented as your money is used for purposes beside your owns and redistributed across generations (by the way, if you are against a generation subsidizing another, you shouldn’t support the current rate of 6.8% which requires working people to subsidize the retired ones under current circumstances).

I like the solution better, that doesn’t pretend to be something else and doesn’t give my power (derived from my money) to big entities who can use this wealth to dominate the investing game (presumably in my interest by seeking profits from me but actually not following my own ideologies, making more difficult for me to access home ownership and redistributing the returns on investments of my money to retired people who have already beneficied from higher interest rates and so, are rewarded twice, at my expense).

And this tells us of the ability of the private market (of pension funds) to exceed the mandatory rate of 6.8% (on the mandatory part). That either means that 6.8% annuities are unsustainable under current circumstances (in which case, lowering the rate is the right thing to do), or that private pension funds, run by professionals, are unable to reach an achievable target (in which case, let me handle my own investments, thank you very much).

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Not exactly the same insurance premiums are not based on income, the AHV is and this is totally wrong. Some people have to pay much more even though their risk is not higher or something. Prices of an insurance should be the same for everyone. Of course if the risk is higher, then also the premium is higher e.g. similar as with car insurances, but you can’t discriminate based on income. That’s why the AHV is so unfair and why I think we should get rid of it.

I just want as much of my money back as I can. I agree with the other point you made that we should transform the system and not pay any annuity at all and everyone just gets back their capital they saved, once they retire.

Yes, that’s a big problem I totally agree with that. So how about getting rid of both as a compromise, the AHV and the BVG and just have the 3a and increase the cap to something between 30k-50k (with the possibility to retrospectively pay for years where you didn’t reach the cap)? Investment rules as per current 3a rules e.g. with Finpension or Viac (I still don’t want to pay social security for the crypto freaks that go all in crypto or people with similar risk appetite)? Then you’re almost free to make your own decisions and invest how you want.

For must of us the conversation ratio should be irrelevant as we won’t be working at 58+ to even have a choice of getting the pension instead of the capital.

All I care about is contribution rates, insured salary and min. interest.

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The status quo is better than that “compromise”. I can live with an imperfect BVG system, I’d have trouble leaving in a socially unstable country where people who have worked all their life for a low pay can’t afford to retire in dignity (and risk taking the streets because they really don’t have anything to loose anymore). :wink:

I’m willing to pay, sacrifice some of my freedom and even let pension funds use it “on my behalf” for that because that’s a very big perk of living in a society that doesn’t let the poorer people drop. In the meantime, I’ll keep doing what I can to reach a point where pension funds actually have to ask the people they insure for what they’d want them to vote in the AGs of the companies they’re invested in and follow that mandate.

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We have to be realistic, changing the system is not an option. Minor changes are the Swiss way. :grinning_face_with_smiling_eyes:
I would have liked a 401k kind of solution or an improved 3a.

Remember that also BVG has a welfare/social objective in addition to AHV. forced savings to avoid a generation of poor elderly people.

something needs to be done or is unsustainable. Life expectancy has increased 20+years in the last ~ 70 years.

Foreigners can recover the gap by paying the missing capital on arrival.

Fully agree!

100% :+1:

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