Disability/Life insurance is a difficult topic as the number of beneficiaries for it will significantly vary by profession.
Either you have solutions tied to specific professions, or you separate it from the retirement scheme. I suspect life expectancy also varies by profession, so I wouldn’t know what the best option would be without thinking about it further.
It’s not theft, it’s the cost of being part of society.
Now say it again but thinking about the pensions in Italy or Greece…
If a part of the population is benefiting from the hard work of another, just because, it IS theft.
I wonder if it’s time to close this thread. Please avoid big words.
It’s true, however, that supporting current pensioners with the returns generated by current contributors’ assets does not correspond to the intended purpose of pension funds/second pillar.
Mate, I am from Greece, my trigger for leaving Greece was exactly realising that the public pension system is a Ponzi scheme, the 2nd pillar is most definitely not that, as far I understand the proposed revision, it was for making it incrementally more viable, but as always, everywhere, people don’t want to lose 2 today for gaining 5-10 later.
Don’t know about Italy.
In Brandenburg it was the old people that prevented the AfD from becoming the majority party.
Tja, this is the problem.
There should be compulsory finance courses in school, and I don’t mean learning options and whatnot, but personal finance and simple investing.
But try getting politicians who will introduce such a curriculum against the wishes of big lobby.
Actually I would say, it wouldn’t work
The main problem is that funds cannot provide 6.8% conversation rate. Which fund will be willing to accept new clients and guarantee conversion rate of 6.8%? Even if employees can choose their own funds, they would be limited to the ones who can cover legal conversion rate. Or they will still have 1.25% interest and problem will not be solved.
Unless SNB starts a pension fund with 0.10 % costs and still offer legal conversion rate , such a solution wouldn’t work.
So far government has tried to push best asset manager section using BVG minimum rates. This kind of forces employers to work with right funds. I am also aware that some employers use collective pension funds to avoid individual costs. Although as we see it is not enough.
Some sort of solution where employers can reduce costs and increase returns need to be provided to fix this problem in longer term.
I wonder if VIAC / Finpension would even venture in such a project. They do 3a, 1E and VB but all of them don’t have return obligations.
The key challenge here is a return obligation. It’s kind of funny that return obligation comes with reduced overall returns for all members. But it’s not easy to quantify that because conversation rate is fixed but expected return not so much.
For example if conversation rate was not fixed, would overall returns be higher for all members of the fund ? Somehow I feel that a legal conversion rate pushes employers to use conservative schemes and eventually end up with lower overall returns. In other words could it be possible that total payout during end of life would actually be more if conversion rate was not fixed for employees who are 50-55 years old today ?
Something similar like SUVA, where the accident rate in a profession or a branch is taken into account. Could be even integrated there since SUVA has also a lot of competence with prevention.
Re VIAC/Finpension, I think you answered your own query with the bolded parts. That’s when things get serious. It’s all fun when nobody is on the hook for insuring capital and ensuring paying an annuity for no matter how long each of us fuckers is alive, it’s a different ball game when one is on the hook.
Conversion rates WILL go down and retirement age WILL go up, there’s no two ways about it, the math simply doesn’t work in the Western world anymore. The signs it wouldn’t work were obvious even back in the late 1990s, in Greece, for example, where a labor minister commissioned a monstrously detailed report and proposed pension reforms including changing conversion rates, phasing in 5-year incremental pension cuts, increasing contributions, increasing pensionable age - all mild, gradual and incremental measures which would have done a world of good for the future… Buuut he ended up getting death threats until he resigned.
Politically it’s the mother of hot potatoes, perhaps in CH there’s a sneaky smart way out: just ask the people 
Edit 3: seems to me that “ask the people” is in fact a great way to deal with political problems and pass on the hot potato to someone else…pity is it often results in a trainwreck like Brexit, Greece’s disastrous 2015 referendum and I’m sure I can find more examples if I search 
Edit: for me it’s really simple conceptually: state/mandatory pensions do not need to provide outsized returns, they need to be able to provide for all members, until their death, however that’s done.
Edit 2: the Greek constitution was raped by the loony left govt of 2015-2019 when they put farce of a referendum in place. The original lawmakers were wise enough to realise that some subjects are too complicated for “the people” to have a say on, hence forbids referenda on socioeconomic questions. One can argue that democracy is not a mix and match, but I for one stand by the reasoning that some subjects shouldn’t be put up for question to the masses.
Then again, participation last weekend came in at a mere 45%. So perhaps they could have.
The cross-financing has stopped in most pension funds anyways so it’s not like young people are still getting robbed.
That’s interesting point. Was there any data shared for this ?
The thing that impact CH most is low inflation.
So even though real returns are not that bad. The nominal returns tend to be low.
Not sure when these conversion rates were set what were the inflation expectations. But if inflation is 1%, a 60-40 portfolio might not yield more than 3-3.5% returns unless an asset bubble is formed. And our pension funds have less than 40% stocks , so returns are even lower.
You’re a consistent voice of reason, the reason I am heating up is because all I hear behind the some of the discussion is “wah wah I want muh moneh, screw everyone else”. Also, as noted above, if the turn out is poor then people lost their chance to participate, a chance not afforded in most other countries in the world, hence all the whine just needs some cheese to go with it.
Plus I revert to the reason we are all here: because we don’t believe the system will work for us as well as we can work for ourselves.
Yes I understand. I think there would be a solution at some point. It’s already good that discussion has started and I saw a newsline that government will try smaller changes versus big bang moves. So even politically there is a will to fix issues
I’m not so sure whether that’ll work better. My fear is that we have 20 votings and the counterparty can just reiterate the same arguments over and over again.
Subjectively, I didn’t feel anything of substance from the pro-side this time. Some public ads, but nothing compared to the contra-side. Votes are won by emotions these days & rational arguments are rarely enough. My hope is that for the next vote both sides manage to convey their rational (& also emotional) arguments (more) equally.
Well.
The average returns from pension funds in Switzerland as per Credit Suisse index since inception is 3% , last 10 years is 3.6% and last 5 years is 3.13%
The interest needed to offer conversion rate of 6.8% for 20 years is 3.25% (from age of 65 to 85). This is assuming no-cross financing. Simply consuming the money you have. Life expectancy right now is 84 years in CH.
It’s clear that there is a gap but the gap is not monstrous that we have to live with continuous kicking can down the road issue.
Smaller reforms trying to address the problems piece by piece can help bring solutions. This could include following
And more education is needed for contributing members on how the big conversion rate doesn’t always mean higher pension. Somehow people remember 6.8% is better than 6% but what matters is the actual pension.
If people understand (and also believe) that returns for them for contribution years can boost the pension capital much higher that eventually 6% is better than 6.8% , this would also help gather support.
I feel that the narrative is being built that money is moving from young to old but I am not 100% sure of this. To be honest, lot of discussion is about 6.8% and not about what impact it has on the actual pension capital for people who are currently 25-50 years old.
People who are retired already will always have negative impact due to reduction in conversion rate. So they need to be supported for sure.
People who are very young (let’s say 25-40 years old) most likely would benefit from reduction of conversion rate . But is it true? By how much? If conversion rate would go down from 6.8 to 6, how much the BVG minimum interest would go up? 1.25 to 2%? No one talks about it because maybe it’s not so obvious and perhaps not even true.
People in age group 40-60 years have toughest time as it’s very complicated to understand what is positive for them.
The technical interest with current life expectancy and 6.8% coversion rate is over 4.5% as far as I know.
Fyi you need to look at conditional expectancy (expectancy given you reach retirement age), which can be somewhat higher.
What is this based on?
Are you referring to perpetual payments or is it because of sequence of risk problems?
Based on my simple calc, I would say 4.5% is needed for 25 years of payments before 100,000 CHF would end up to 0 if 6800 CHF are withdrawn every year.