More of a gratuity at retirement than a pension ! A reasonable way to think about it.
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Keep in mind that the reduced conversion rate only affects people that have no or very little non-mandatory capital in pillar 2 as most pension funds already use a significantly lower overall conversion rate to the extent they can (umhĂŒllender Umwandlungssatz). And not just high earners have non-mandatory capital in pillar 2 as even e.g. a higher than minimum interest credit counts as non-mandatory capital, as I understand it. For people that are affected most during a transitional period, there is some compensation.
Longer term, it improves the situation for people with a lower (possibly part-time) income, mainly due to elimination of the fixed coordination deduction. And it should reduce the redistribution of returns from employees to retirees, which will also benefit high earners.
One could argue about the details of the transitional measures but I think all the permanent changes are reasonable. Fundamental flaws of pillar 2 will remain but I suspect that if this BVG reform is rejected, the next proposal will rather be worse than better (more instead of less redistribution). So I think itâs better to accept these relatively small improvements than to risk going backwards with the next proposal.
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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 wasnât meant to be redistributive, youâre supposed to get out roughly what you put, taking into account risk pooling for the annuity)
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That.
And that, are whatâs 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.
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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.
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I think itâs 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
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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
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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), thatâs where the cross financing happens.
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Exactly this. It was never intended like that in the 2nd pillar. The longer we wait to reform the 2nd pillar, the bigger the âtheftâ 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 doesnât 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 isnât. 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 youâll end up with a 7-figure sum in your 2nd pillar once retired. This is like it should be for everyone.
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I agree with your statement, but question is how do you properly communicate that to the general publicâŠ
Iâve 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 SĂ€ule 300â000 Franken gespart hat, hat heute Anspruch auf eine Monatsrente von 1700 Franken. Nach einem Ja am 22. September wĂ€ren es noch 1500 Franken.
â 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 RentenkĂŒrzung hĂ€tte im Total happige Konsequenzen: Ende 2023 betrug das ÂAltersguthaben aller ErÂwerbsÂtĂ€tigen 646 Milliarden Franken. 260 Milliarden davon betreffen das Obligatorium. FĂŒr dieses Altersguthaben mĂŒssen die Kassen nach heutigem Recht eine Rente auf der Basis von 6,8 Prozent pro Jahr zahlen, bei Âeinem Ja am 22. September nur noch 6 Prozent. Das sind knapp 12 Prozent weniger. Die RentenansprĂŒche sĂ€nken um gut 30 MilÂliarÂden Franken.
â Here they kind of suggest that the pensions would âwinâ 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 âthere is no problem now. if we say yes, we get less and the pensions get more for âthemselvesâ that us peasants will never seeâ. If anyone has additional arguments, Iâm happy to hear them and include them in future discussions with that colleague. 
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You canât (itâs too complex). This is where direct democracy fails. What good is a vote if 95% of the voters donât even understand the problem?
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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 wonât effectively get a 6.8% conversion rate. Many (most?) pension funds use an overall conversion rate (umhĂŒllender 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.
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Yes. But when using that argument you get the following claim as answer:
Weniger Rente fĂŒr Gutverdiener
Die Kassen mĂŒssen den Versicherten aber eine Rente garantieren, die mindestens so hoch ist wie die ÂRente, die fĂŒr den obligaÂtoÂÂrischen Teil des angesparten AltersÂkapitals vorgeschrieben ist. Darum hĂ€tte die Senkung des Mindest-umwandlungsÂsatzes auf 6 Prozent auch negative Folgen fĂŒr Versicherte mit ĂŒberobligatorischem Kapital.
Beispiel: Ein Versicherter hat mit 65 im ObliÂgaÂÂtorium 300â000 Franken und im Ăberobligatorium 50â000 Franken angespart. Sein Alterskapital betrĂ€gt also total 350â000 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 ergĂ€be nur 1545 Franken monatlich. Der obligatorische Teil des Alterskapitals von 300â000 Franken muss ÂgemĂ€ss 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 PensionsÂkasse nicht gehen.
Das Beispiel zeigt auch: Das ĂŒberobligatorisch gesparte Alterskapital von 50â000 Franken bringt Âkeinen Franken zusĂ€tzliche Rente.
Sinkt der Mindestumwandlungssatz wie mit der GesetzesĂ€nderung geplant auf 6 Prozent, dĂŒrfte die Pensionskasse kĂŒnftig eine Monatsrente von nur 1545 Franken bezahlen. Denn gesetzlich geschĂŒtzt wĂ€re nur noch eine Rente auf der Basis von 6 Prozent der 300â000 Franken im Obligatorium. Das sind 1500 Franken pro Monat. Dieser Betrag lĂ€ge tiefer als die 1545 Franken, welche die Pensionskasse dem Versicherten inklusive ĂberobligaÂtorium gestĂŒtzt 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 âumhĂŒllendâ 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 shouldnât 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.
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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. âLeibrentenâ offer way lower conversion rates and on top of that youâre paying withdrawal taxes. Makes no sense doing it.
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