2nd Pillar (BVG) proposed Revision

[Abs_max]

Report on 1e

The link above has a study done by PWC which shows the asset allocation of 1e plans in Switzerland. It says about 37% is in equities.

[Abs_max]

I think Dutch pension fund is considered the best in Europe and is also going through a reform. I read sometime back that they raised the equity exposure limits a bit too. Perhaps something to learn and leverage.

Pension plans study

[Abs_max]

I also think all of us should try to not view pension funds with the same lens as our stock portfolios. Pension funds need to provide guaranteed income to the retirees. This is not so easy with a very high equity allocation given the volatility. This is why pension funds have an asset allocation mandate.

When the move from defined benefits to defined contribution happened, it was also a bite the bullet moment. Many people were unhappy because that significantly reduced their retirement income. But it had to be done.

I agree that performance and returns could be improved and should be improved. Government is looking into reforms and hopefully things will improve. As I mentioned above CH has potential to improve its ranking in terms of pension fund regulation

[Brndete]

Well, it’s just a single example. However, in CHF terms it’s pretty much in line with the study @Abs_max quoted. I doubt people liquidating temporarily is a big factor, to me the numbers rather confirms even lots of well-earning people are skeptical about stocks.
So it might be quite justifiable to mandate contributions to both pillar 1 and pillar 2 without self-selected strategies. Up to a point, at least.

Anyway, that’s more to comment on some previous posts. The reform itself, as I understand is focused on life-time contributions of average earners, as well as to extend coverage to lower incomes.

[Wolverine]

Honestly, the extended coverage for lower incomes seems sorely needed to me and I’m willing to eat a lot of more unsavory things to have it happen.

The minimal salary and coordination deduction, in particular, make no sense to me. The idea of “you’re so poor that inadequate coverage by the 1st pillar only is enough to maintain your very low standard of living so your employer doesn’t have to pitch in” seem alien to me.

[dom.swiss]

It’s what Luxembourg is doing. Each the employee, employer and government pay 8% of the salary into the pot of “Caisse nationale d’assurance Pension”. This results in a minimum monthly pension of EUR 2,244.82 as of Jan 1st, 2024. The maximum is “5/6 of five times the reference amount of 2,085 euros at index 100”. A bit opaque… or maybe just a translation issue.

Calcul de la pension de vieillesse

[Dr.PI]

Schweizer halten zu viel Liquidität - und vergeben damit Renditechancen

[almi]

That example though… 35k emergency fund? seems overblown to me.

[ZHCycle]

@Yanikuza

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).

6.8% is far too high. People on average live far longer. 6.0% is still too high.

[Cortana]

Well according to the 20min poll this revision will be grounded.

[assemblyrequired]

It is way too complicated. And campaigning for a no is easy by simply focusing on “6.8% → 6.0%, less pension bad”.

[Yanikuza]

After reading up on the vote, I realized that the 6.8% conversion rate is not respected by the vast majority of pension funds. Mine has a rate even lower than 6%…

I think this reform is necessary, but with the recent news about the FSIO’s miscalculations, I’m afraid this vote won’t pass just out of distrust of the figures.

[nabalzbhf]

@Yanikuza

Mine has a rate even lower than 6%

The change is only on the mandatory part (the one that can be affected by the law). From what I read 60% of employees are insured over the minimum.

I guess that will mean further depressing the over mandatory conversion to fund the way too high rate on the mandatory pensions.

[ZHCycle]

That isn’t how it works. The 6.8% applies to the mandatory part. Most people have AGH that is above the mandatory part and the pension funds are allowed to have a lower Umwandlungssatz then.

[almi]

@ZHCycle

above the mandatory part and the pension funds are allowed to have a lower Umwandlungssatz

This is something I always get confused. How does “above mandatory part” and “lower than minimum” fit together?

[assemblyrequired]

The extra-mandatory part is much larger than most realize, as it can come from various sources:

• a pension fund’s return above the minimum return
• employer’s contributions higher than the minimum
• voluntary contributions
• contributions before turning 25
• part of the salary above 88’200

A pension fund has to pay 6.8% of the mandatory part per year as a pension. There are two ways how to deal with the extra-mandatory part:

• pay 6.8% on the mandatory part and a much lower rate (e.g. 5%) on the extra-mandatory part
• don’t split the money but instead set one rate for the entire thing (“umhüllender Satz”), which can be lower than 6.8% but the resulting pension must not be lower than 6.8% of the mandatory part

[almi]

@Cortana

People voting for things they have no clue about.

Thanks I guess.

@assemblyrequired

don’t split the money but instead set one rate for the entire thing (“umhüllender Satz”), which can be lower than 6.8% but the resulting pension must not be lower than 6.8% of the mandatory part

That makes sense, thanks for the explanation!

[Luk_nuts]

Another source is when you start paying 2nd pillar before the age of 25.

@nabalzbhf

From what I read 60% of employees are insured over the minimum

It’s actually more like 85%.

@Cortana

People voting for things they have no clue about.

Same thing in Nationalrat and Ständerat though…

[Dr.PI]

Facts and figures, guys, facts and figures.

Let’s not start yet another political brawl.

[campFIRE]

Apart from the overall complexity of the “solutions” proposed in the 2nd pillar revision, as I young person (<30) I don’t really like the following points:

• reducing the mandatory 2nd pillar contributions for the older workers (from 18% to 14%) and increasing them for the young workers (from 7% to 9%).
  This basically will reduce the income after deductions by 2% (gross) for young people, and increase it for old people by 4%!
  So they force the young to pay more in it, when we know it’s “d̶e̶a̶d̶” money that won’t compound much and that other revisions will be needed, lowering even more the benefits. Also, people close to retirement will pay less into it ( ).

• supplemental income for the people reaching retirement in the next 15 years after the revision: max 200 CHF per month also depending on the 2nd pillar size.
  I agree, these people will be a bit screwed, but who won’t? I am screwed being now in my mid 20s when they will lower the conversion rate again in 10-20 years. With this “supplemental income” they will take from everyone to pay these 200/150/100 per month.

Final remark: IMO if you decide now to lower the conversion rate to 6.0% you do it for everyone, because the system was not well designed apparently. This last idea clashes with the concept that and acquired right (pension) can’t be taken away from you.

I feel a reform is needed ASAP, but this might not be the optimal one. Is it worth to wait? Or you should bite the bullet and take it as it is?

Sorry for the rant and feel free to disagree !

PS: in the end I can’t even vote, so I need to relax and avoid thinking about it as it’s outside of my control.