The more we wait to balance the 2nd pillar, the more redistribution from active to retiree will be happening (so there will be less money for the next generation to retire). Fixing the imbalance is what benefits future retirees.
(Pillar2 wasn’t meant to be redistributive, you’re supposed to get out roughly what you put, taking into account risk pooling for the annuity)
That.
And that, are what’s GREAT in my opinion.
Is there a reason for the interest to be this low? It barely beats inflation.
My understanding is that these institutions invest into equities, commodities, real estate, etc. If that is true I would expect the return to be higher.
Also I read somewhere that the pension funds do generate higher returns from the capital markets, but they add it to their reserves instead of returning it to the employees.
They use the yield on the markets to finance the rents that were too high and are still too high. Reducing the mandatory conversion rate from 6.8% to 6.0% would allow pension funds to reduce this crossfinancing that never should have happened in the first place. Reducing it down to 4.8% would stop it completely.
According to swisscanto, pension funds achieved an average return of 3.5% from 2014 to 2023.
The interest on retirement accounts depends on the pension fund. Some only give minimum interest whilst others are more generous. The level of interest depends on the achieved performance but also the individual situation / structure of the pension fund.
I think it’s a matter of how much contributions they get (from active employees ) , how much returns they make (from capital markets) and how much pensions (to retirees) they need to pay on annual basis
So you will see different interest rates for different pension funds
finance the rents that were too high and are still too high. Reducing the mandatory conversion rate from 6.8% to 6.0% would allow pension funds to reduce this crossfinancing
What rents? And what are pension funds crossfinancing?
I think they meant pension (German: Rente).
Cross-financing: when current workers are contributing to the pension fund to cover gaps for current retiree instead of for their future benefits
My understanding was that in the second pillar, everyone saves for themselves over the years (I.e employee and employer contribute each month to the pension fund).
When one reaches retirement age, the accumulated wealth, including interest (compounded) belongs to you and only you. In other cross-financing happening on the second pillar.
Whether you want to withdraw the account as a lump sum, or receive a pension on the accumulated savings, that choice is yours.
Someone has to pay for the unsustainable conversion rates on the mandatory part, currently this is paid by depressing the returns of the contributors (the pension funds are forced to add it to their reserves instead of distributing it in order to cover for that), that’s where the cross financing happens.
Exactly this. It was never intended like that in the 2nd pillar. The longer we wait to reform the 2nd pillar, the bigger the „theft“ of the younger generations will be in the end.
The pension funds use most of their yields to crossfinance pensions that are too high, which leads to very low interests for the accumulators/working population. Eventually they end up with pension funds that could have been significantly higher (we all know how big the difference of 1-2%/year higher returns over decades are). On top of that, because we waited to long to reduce the conversion rates to a sustainable level, they not only have several 100k less in their pension funds, but also lower converstion rates applied to that. What should have been 60k/year in pension, drops down to 30-40k/year.
In my opinion conversion rates should be linked to remaining life expectancy (currently 25 years when you get to 65) and expected returns. Both factors changed a lot since the 80s but the conversion rate was only reduced once from 7.2% to 6.8%. And now we are paying the price for it. And the negative impact will only grow if this vote in 3 weeks doesn‘t get through.
P.s. My employers pension fund is pretty excellent in that regard. As most of it is in non-mandatory part the total conversion rate is at around 4.5%. This sounds bad, but it isn‘t. First the massively overcontribute on their part. Second you are getting great interest. It was in the 7-9%/year range for 2021-2023. So you‘ll end up with a 7-figure sum in your 2nd pillar once retired. This is like it should be for everyone.
I agree with your statement, but question is how do you properly communicate that to the general public…
I’ve read this article on K-Tipp, which in my eyes is very one-sided (not surprising, they supported the referendum after all). But since colleagues brought this article up in a recent discussion, I would like to debunk some statements now (with hard facts, ignoring the overall negative sentiment).
Two of their claims:
Wer bis zur Pensionierung im Obligatorium in der zweiten Säule 300’000 Franken gespart hat, hat heute Anspruch auf eine Monatsrente von 1700 Franken. Nach einem Ja am 22. September wären es noch 1500 Franken.
→ this of course only holds true if you would actually get the 1700 in 30 years; and the whole point of the proposed change is to ensure that they can still pay out in 30 years which doesnt seem to be ensured.
Die vom Parlament geplante Rentenkürzung hätte im Total happige Konsequenzen: Ende 2023 betrug das Altersguthaben aller Erwerbstätigen 646 Milliarden Franken. 260 Milliarden davon betreffen das Obligatorium. Für dieses Altersguthaben müssen die Kassen nach heutigem Recht eine Rente auf der Basis von 6,8 Prozent pro Jahr zahlen, bei einem Ja am 22. September nur noch 6 Prozent. Das sind knapp 12 Prozent weniger. Die Rentenansprüche sänken um gut 30 Milliarden Franken.
→ Here they kind of suggest that the pensions would “win” 30 billion CHF if this goes through. But to my knowledge no pension can just make crazy wins without paying this out to the insured customers or at least declare it in their reports, no?
Taken together they say “there is no problem now. if we say yes, we get less and the pensions get more for “themselves” that us peasants will never see”. If anyone has additional arguments, I’m happy to hear them and include them in future discussions with that colleague. 
You can‘t (it’s too complex). This is where direct democracy fails. What good is a vote if 95% of the voters don‘t even understand the problem?
Yes, reduced pension payments should result in higher interest rates for employees (and/or higher reserves if they are too low).
Also, even without the reform, a large part of the mandatory pension capital won’t effectively get a 6.8% conversion rate. Many (most?) pension funds use an overall conversion rate (umhüllender Umwandlungssatz) of far less than 6.8% and some people will withdraw capital instead of choosing the annuity. And the reform includes compensation payments for a transitional period of 15 years. I.e., overall the difference in pension payments will be far less than CHF 30 billion.
Yes. But when using that argument you get the following claim as answer:
Weniger Rente für Gutverdiener
Die Kassen müssen den Versicherten aber eine Rente garantieren, die mindestens so hoch ist wie die Rente, die für den obligatorischen Teil des angesparten Alterskapitals vorgeschrieben ist. Darum hätte die Senkung des Mindest-umwandlungssatzes auf 6 Prozent auch negative Folgen für Versicherte mit überobligatorischem Kapital.
Beispiel: Ein Versicherter hat mit 65 im Obligatorium 300’000 Franken und im Überobligatorium 50’000 Franken angespart. Sein Alterskapital beträgt also total 350’000 Franken. Die Pensionskasse will seine Rente nun mit dem tiefen Satz von 5,3 Prozent umrechnen.
Das darf die Kasse aber heute nicht. Denn das ergäbe nur 1545 Franken monatlich. Der obligatorische Teil des Alterskapitals von 300’000 Franken muss gemäss geltendem Gesetz mit einem Umwandlungssatz von 6,8 Prozent umgerechnet werden. Das ergibt eine Mindestrente von 1700 Franken. Auf diese hat der Versicherte einen garantierten Anspruch, darunter darf die Pensionskasse nicht gehen.
Das Beispiel zeigt auch: Das überobligatorisch gesparte Alterskapital von 50’000 Franken bringt keinen Franken zusätzliche Rente.
Sinkt der Mindestumwandlungssatz wie mit der Gesetzesänderung geplant auf 6 Prozent, dürfte die Pensionskasse künftig eine Monatsrente von nur 1545 Franken bezahlen. Denn gesetzlich geschützt wäre nur noch eine Rente auf der Basis von 6 Prozent der 300’000 Franken im Obligatorium. Das sind 1500 Franken pro Monat. Dieser Betrag läge tiefer als die 1545 Franken, welche die Pensionskasse dem Versicherten inklusive Überobligatorium gestützt auf den Umwandlungssatz von 5,3 Prozent zahlen will.
Yes, however, the reduced mandatory conversion rate does allow the pension fund to increase the interest rate and/or increase the ‘umhüllend’ conversion rate. And there are compensation payments for the transitional period.
Obviously, it will not be beneficial for every individual situation. But it fixes or at least reduces redistribution that shouldn’t be happening in pillar 2 - and as mentioned before, long term it will be a big improvement for low income employees, mainly due to the elimination of the fixed coordination deduction.
Out of curiosity, does anyone have an idea what the conversion rates are for annuities on the public market?
Say I cash out my 2nd pillar at retirement. What are my chances to find a better conversion rate than 6% with other providers like insurance businesses or banks?
Zero. „Leibrenten“ offer way lower conversion rates and on top of that you‘re paying withdrawal taxes. Makes no sense doing it.
I’d guess 3-4%, but it would be good if someone has real data on this.
I think it depends on expected life expectancy, age of the person and expected Investment returns (for different asset classes) at the moment of annuity discussion.
For example -: If expected life expectancy is 85 and someone retires at age of 65. Then minimum conversion rate would be 5% (assuming zero residual value) because this is basically assuming zero returns from capital markets. If provider doesn’t offer 5% then no one will buy annuity.
However if someone is seeking a perpetual annuity then the rates would be lower because institutions need to factor in the risk of extended life. I believe they have some models