I’ve just a question, maybe we could start a statistic, about the second pillar. How many people here are planning to not cash out the second pillar?
Mine is not that big, and if it gives me 6% yearly when I’m 65, I think I might accept it just for the peace of mind.
Would you cash out your second pillar?
It’s an interesting question. I guess you’re thinking in terms of whether you can get out of it more than you put in it by taking it as a pension and living to a ripe old age?
I am not planning to cash it out early.
In case we do not cash out and we accept the yearly pay in case of death will the 2nd pillar pass to my heritors?
You can create a poll.
I think in reality, many people might not be able to freely choose e.g. job loss and unable to get a new job.
Nope. Basically you convert your capital in an annuity.
However some special cases (should be checked individually since it might not be the same for each insurer):
-life partner (marriage is not a necessity anymore, but there are some terms) gets a widow income
-kids get something until 25y of age if I remember well.
It is not the full amount, but mostly a certain percentage of it.
If you retire earlier than the pension fund rules for taking the pension as an annuity, you will also have to cash it out.
By 6%, do you mean the BVG conversion rate for the mandatory portion, which we will probably reach in the future?
Because with any kind of “Überobligatorium”, one will probably not even get close to 6%.
Keep in mind that whatever conversion rate you get (see comment above), it’s not inflation-adjusted. I.e., you can’t directly compare it with a SWR, which commonly is inflation-adjusted.
If I had a pillar 2 at a pension fund at retirement age and I’d get an inflation-adjusted 6% annuity, I would take the pension. However, with the more realistic maybe 5% without inflation adjustment, I’d cash out. I currently anyway don’t expect to have a pillar 2 at a pension fund at retirement age, so the question is more hypothetical for me right now, though.
I’d also take 6% inflation adjusted. At least AHV is inflation-adjusted, right?
Yes, AHV is adjusted to a price and salary mix index. Adjustments are applied every other year.
Indeed… This could be probably added to the poll
I voted “Yes to invest it better” as it matched best, but “invest it better” needs explaining.
I don’t want to invest it better for a better return (I for one can’t put together an almost zero risk portfolio with 6% return …).
I want control which means
(I’ll also add that I feel very fortunate to have amassed enough assets that I can afford to cash out pillar 2)
I’m not so worried about the pillar 2 after retirement.
I’m worried about the fact that before retirement, it is not even growing as much as a cash account with interests, which is a really disappointing opportunity cost because I can do nothing about it except picking an employer based on how the pension plan is managed (which I can’t/don’t want to do).
It is so bad that at some point, it might become financially a better choice to stop working just in order to invest the pillar 2 in a vested account and get market returns that compensate for the loss of labour income.
I wish we could choose our pension plan freely, it would probably help compensate for the demographic shift and make the pension system more sustainable.
I used to think like that until about 1 minute ago but it seems that the employer match (immediate 100% return) is worth an additional return of 1.75% per annum for funds kept for 40 years, 3.53% per annum for funds kept for 20 years and 7.18% per annum for funds kept for 10 years. This would come on top of the very small returns the pension fund officially allocates to me.
Maybe I could negociate a corresponding increase in salary if my employer didn’t have to pay that but I would guess it would be more difficult, as that would not be mandatory for them. For something that will only loose value in the direst of situations (if it has to sanitize its situation after all else has failed), that’s not a return I can match.
Edit: of course, at some point, the additional returns that could be had in the market for a bit more risk will still offset the additional returns on new contributions but that point will come later than I would have first expected while not taking into account how impactful the employer contribution actually is.
I thought of this too, but this is very inefficient because all this money that the employer has to pay into the 2nd pillar could have come from the market, saving them that money. From the perspective of an employer, the salary includes all these extra costs, and it means a lower salary for the employees.
I hear you. I often feel the same way.
Still, a little pushback.
If people could freely choose their pension plan, I believe it would soon look like pillar 3b: mostly empty. Wellfare (paid by taxes) would have to take care of those people.
The pension fund has to manage both cash flow needs and expected returns on invested funds every month. Every month they’ll have to adjust their cash flow needs (based on plan participants choosing to have a guaranteed 6% pension) and money they can invest (based on money they have to shell out for plan participants that chose cash payout and money flowing in through plan participants still paying into pillar 2).
All of these cash flow needs and money invested/withdrawn needs to be managed with duration assumptions/expectations (how long will this cash flow last, how long will this money need to be invested, etc).
The pension fund needs to be able to do pillar 2 payouts in phases of market drawdowns at the face value of “your” accumulated funds. You retire in March 2020 and want your pillar 2 payed out? You’ll get it at face value, even if the market (and the assets backing “your” pillar 2 portion) just dropped 20%.
This requires hedging which costs money which reduces your return.
You’re worried about your pillar 2 not growing as much as a cash account with interest? What about the many years when interest rates were negative for CHF? Ok if your pillar 2 assets also decline while interest rates are negative?
The pension fund isn’t there to optimize your return, it needs to manage the cash flows while trying to optimize the overall return of all the folks participating in the plan.
Can they do a better job? Maybe?
Could I do a better job given the mandate? No.
Yes, these are good points!
Yes, I would be fine with this, because the horizon is 40 years. Having steadily increasing assets comes at the cost of low returns, which is not making the best out of the long horizon.
I will likely retire much earlier than regular age, and before then will have my 2nd pillar in a vested benefits account, which I will then cash out as needed/ most optimall timed and reinvest.
I’ve retrieved your personal details from the forum admin and contacted your pension fund to let them know you’re fine with making return adjustments for your profile accordingly.
Just kidding … but I applaud you for being consequent (and I agree with you).
You’re financially educated, though, and I doubt that your and my opinion will ever be a majority opinion. 