Yes one should. And one could. But the opportunity cost would always come into play.
But you said some people might leave CH for this or become self employed just because pension fund returns are lower than VB returns. Those people need to be really rich and I would say they cannot be that many.
I simply do not believe that there is a vast population who fall in that bracket.
You don’t need to be that rich to reach a point where retiring becomes more attractive than working due to the forced investment into bad pension plans.
If somebody contributed >10% per year (employee + employer) with an annual income of 150-200k, near retirement they could easily reach 1.5mn CHF in their pension plan. If they expect a ~7% return on VB or ~1% return by working in a company, then that’s 90k a year of loss from working. Given that these 90k are essentially tax-free, it represents at least 120k of lost pre-tax income.
At this point, that person would have to decide “Would I rather work 40h a week to earn e.g., 150-200k pre-tax a year, or just stop working and earn the equivalent of ~120k pre-tax just from the additional returns”.
It’s pretty strange to me that the Swiss government has effectively created a system that disincentives people near retirement so much from keeping a full-time job.
This post here:
Solves this discussion for good. Just don‘t do it, the loophole is beeing closed.
I think Swiss government is trying to change all this to eventually being more returns to 2nd pillar so that VB differential is reduced
That’s why 1E is being more efficient by allowing 2 years additional period of buffer in case of market crash issues.
I wouldn’t be surprised if few years down the line 1E becomes a standard offering and BVG will only control the mandatory pension.
—-/
Coming to assumptions
Having said that, you are right. If these assumption do hold true, someone can choose to retire if they have enough income outside pension funds to support themselves
A good point on whether the incremental amount is worth it for the 40 hours of work.
Another thing I thought about was whether it is really fair to compare the 1% to the 7% as there are 2 different asset classes with different risks. Maybe it is more fair to compare the 1% to the return on Swiss government bonds, in which case you’re looking at <1%.
FYI the commentary on the legal change is not hinting at all towards this (it mentions several times that pension needs to be a collective investment, not individual, even 1e, but they expect some alignment across funds so that there would be 10-ish offering that would become standard over time – that’s the reason for limiting the 1e offer to 10)
Also none of the changes in the (failed) national LPP votation from last month were about making it easier for people to invest on higher returns assets. It seems that the government doesn’t really perceive the subpar returns as an important issue at all compared to other problems of the 2nd pillar, since this didn’t even make it into the proposed reform.
The 1e reform took place in 2016 already, and none of the (large) companies my wife and I have been working in have made use of it
So just to be sure. If every individual is maintaining their own account and strategy in 1E account then how come it is collective?
You don’t have free choice of investment in 1e, you pick among a few strategies.
Anyway you can check https://www.newsd.admin.ch/newsd/message/attachments/90046.pdf (page 4, “Es stellt sich ebenfalls die Frage nach der Einhaltung des Grundsatzes der Kollektivität […]”)
edit: what they refer to is the principe of collective plans from Art 1c (Fedlex)
This part I know. We have 1E with 10 Strategies.
But I was mainly trying to say that everyone maintains their individual account and the funds are not used for anything else other than paying lumpsum to individual. There is not even an option of annuity.
So I wonder what collective purpose it serves
Thanks for the link
I don‘t see any indication that 1e becomes the norm. In the contrary, I think it is tolerated but the government will take any opportunity they find to revert it back tonhow it was before… there is loud and clear criticismn that 1e was not collective enough and counter the spirit of the pension system.
Interesting to hear
It’s true that 1E plans are not that big yet.
About 4000 companies offer these plans. I think about 9% of eligible Swiss employees have 1E plans. As per report from PWC.
It’s growing in membership but as you said the big 5 of Switzerland might not have such plans yet.
Source -: https://www.pwc.ch/en/publications/2024/ch-1e-pension-plan-survey-2024.pdf
To be honest I don’t really understand why would it be a problem for government?
1E plans cover extra mandatory pension. This pension already is not regulated by BVG conversion rate.
So if employees don’t get BVG rate for conversion (for this amount), why would government have an issue in letting these funds be in 1e ? Only thing such plans do is to reduce the load on pension funds & have eligible employees higher pension (hopefully) in their retirement if their strategies work out better
(a) 1e doesn’t reduce the load on pension funds (PF), it increases it. By removing exclusively non-mandatory parts of the fund, the PF as a whole has less possibilities for cross-subsidies. Basically the system gets less social and more individual. That is good for the high-earning individual (and only those have 1e), but bad for the average or low earner.
(b) The government rightfully wants to protect some people from themselves and doesn’t like 1e because of that little hopefully you put in brackets. What if a new retiree is forced to retire in a big crisis, running out of money rather quickly thereafter because they didn’t understand the risk of their asset allocation? That person will soon enough ask the state for financial support (Ergänzungsleistungen). Same reason why there are some efforts by some actors to abandon the option to withdraw capital altogether (for mandatory parts at least).
And at same time there is so much talk about stopping cross financing because it’s not fair to younger generation.
Let’s see where this goes.
An interesting stat, in 2023, 32 billions are in vested benefits accounts
That’s not very much. And a vast majority of those will be assets that are in the intended use of VB, like early-retirees or people that left CH.
The BSV even has a document titled “Don’t forget your retirement assets” on unclaimed assets available in 9 languages.
Thanks for the link, I had a quick read. It seems like a lot of fuzz for a very small numbers of people that
What I didn’t catch directly is whether the new rules on reporting to / of pension funds and VBs would be limited to those handful of 1e moves, as are supposed to be tracked individually, or to all moves outside a pension fund? For example a direct pension to pension move, or a temporary move to VB during job search or a time-out.
For the latter case, it seems like a big overkill. And if the objective of the motion was go give some limited benefits for 1e holders, that whole things looks like a shot in the own foot.
All moves, they also realized they could close the loophole. The only 1e specific thing is the ability to delay for two years I think.
Once Finpension told me that government is trying to make reforms to 1e to encourage more companies to use it
I see this new step as a way to give confidence to people who use 1E plans but also to employers to offer 1E plans. I know others on forum think there is no such inclination.
There was another reform few years back which removed the need for employers to guarantee funds at time of exit. Prior to this employers didn’t want to take this step as it was still the same requirements
I’m wondering how the new law will take into account this scenario:
"It is possible that your new pension fund cannot accept the entire amount
as the benefits it provides are lower than those offered by your old fund.
In this case, the surplus vested benefits must be transferred to a vested-benefits institution."
Regarding 1e-plan, big companies like theses plans because it can improve the balance sheet of the company
