Tech employers and second pillar?

[wavemotion]

@MisterB

7/10/15/18 (% of insured salary) from the BVG, of which the employer pays 50%

Where do I find those numbers or how can I calculate them using the certificate of insurance? Thanks

[MisterB]

@wavemotion

Where do I find those numbers or how can I calculate them using the certificate of insurance? Thanks

All certificates of insurance are slightly different, so it’s not impossible that these numbers are explicitly on there, but it’s uncommon I think. In any case, you can certainly compute your own rate of contribution (and the employer’s) using that certificate. You simply need to divide each annual contribution amount (employee or employer) by your listed insured salary. Be aware that there might be more than just “savings” contributions in there though, like contributions for risk benefits and administration expenses (that do not ‘accumulate’ in your account balance over time).

Still, the simplest way to find out about your plan is to ask your HR department to provide you with a copy of the current plan provisions, or with a summary of the scheme. This information (i.e. the equivalent of the 7/10/15/18) should systematically be in there and easy to find.

Hope this helps.

[wavemotion]

I found it and it matches the math
There are 3 different possibilities:

[wapiti]

The % is only one part of the equation.
You need to consider the upper limit and the “Koordinationsabzug”.

Exemple: Salary of 120’000. Employee pays 3,5% and employer 3,5%

Company A
Koordinationsabzug: Fr. 25’095
Upper limit of annual salary: 86’040
Each year, 4266.- goes into the pension fund (0.07*60’945)

Company B
Koordinationsabzug: Fr. 0
Upper limit of annual salary: no maximum
Each year, 8400.- goes into the pension fund (0.07*120’000).

[wavemotion]

in the last certificate I see the Mandatory part and the total. Then the base rate, an interest rate and conversion rate, that I guess are not what I’m looking for.
At the really end there are the annual savings contribution (employee + employer), the annul contribution to risk costs including BVG additional costs and the total, but no deduction costs.

[s-g]

Your own insured salary should also appear somewhere in your certificate.
As @wapiti was pointing out the definition of insured salary can indeed be an important parameter. The current LPP minimum requirement for insured salary is defined as gross annual income minus a “coordination deduction” of 25095 CHF (insured salary capped at 60945 CHF), but again there’s a lot of variability in how different companies calculate this if they want to provide additional benefits.
If you got a copy of your pension plan the definition of insured salary needs to be explained there.

[wavemotion]

The “insured salary” is 100% of my “declared salary”.
Is that the right thing to look? Thanks

[s-g]

@FIREstarter

AHV will step in if you pay more than 70% as an employer. Afaik, 70% is the absolute maximum they approve. It will only be noticed during a revision (every 3 years or so), but then you have to pay.

Do you have further details on the exact requirement concerning the employee-employer split? I’ve tried searching online but couldn’t find anything clear.

[s-g]

@wavemotion

The “insured salary” is 100% of my “declared salary”.
Is that the right thing to look? Thanks

Yes, it looks like your employer doesn’t apply any coordination deduction.

Your pension plan seems somewhat unusual to me : they don’t apply any coordination deduction, while lowering the total %contribution even below the standard BVG ones and reducing the employee’s share. Interesting…

[FIREstarter]

@s-g

Do you have further details on the exact requirement concerning the employee-employer split?

It’s hard to find an official information regarding this one. I use 70% in my company, and that’s already stretching it a bit. It’s the information I got from two different tax advisors - and one of them has a lot of clients. You can check some more details here

@Patron

Wait that’s for the AHV part only right?

No, I’m talking about P2 contributions.

@Patron

I worked for a company some time ago that paid 100% of the contribution for second pillar and it never was an issue for years.

There is the possibility that the employer pays 100%, but then you definitely should do a tax ruling before (see the link above). This is where your company checks with the tax administration if they approve the 100% employer part. Please note that the ruling takes a while, and it’s also not free (you usually have to pay a tax advisor to handle those things).

I can’t say for sure (because I didn’t try it), but I’m sure that the tax administration will only approve the 100% employer contribution if the company’s tax bill is high enough. Tax administration still wants to make sure they receive enough profit taxes. So its a case by case decision and can’t be generalized.

And I do understand the tax administration! 100% employer contribution is the best thing which can happen for the employee and employer. Employee gets more net salary, employer pays less profit taxes and is much more attractive to potential employees. The only loser is the tax office.

[MisterB]

@FIREstarter

100% employer contribution is the best thing which can happen for the employee and employer. Employee gets more net salary, employer pays less profit taxes and is much more attractive to potential employees

Less profit taxes also means less profit, so not always the best thing for the employer

[FIREstarter]

Yes. I simplified it a bit. Also, you have to differentiate regarding the size of the company.
If you have your own LLC with just yourself or 1/2 employees, it’s a good deal. You save profit taxes and can redirect more money towards P2.

For an enterprise, things are a bit different. Especially if we’re talking about a public traded stock company.

[MisterB]

@Patron

@MisterB

Less profit taxes also means less profit, so not always the best thing for the employer

It’s actually a clever way to attract employees. They could do this in other ways, e.g. adding additional fringe benefits etc. they will have to pay for and lower profits too, but that way they invest in attracting employees but shift the cost (they would have anyway) partly to the tax office, which is quite clever IMO.

You’re absolutely right, it’s just another investment choice for the employer, arguably a good one. It does imply that the employer wants to attract or retain employees (a no-brainer in most cases!), but also that they are willing to use the second pillar for it. In my experience (at least the last decade), employers have not really been using the pension benefits to attract employees, quite the opposite (serious decreases in conversion factors, shifting the risk to the employees, etc.). The tides might be starting to change now though, with most plans in overfunding, and a different economic outlook.

Granted, my experience mostly derives from working with medium and large corporations, so it might be different and more competitive within smaller firms, especially in the tech sector.

[s-g]

@MisterB

It does imply that the employer wants to attract or retain employees (a no-brainer in most cases!), but also that they are willing to use the second pillar for it.

In case of multinationals it would also imply that they know how the second pillar works. Sometimes the HR is not even based in Switzerland and has no idea of the local pension system.
This can lead to the absurd situation where (personal experience) the company has a very generous pension plan but they don’t even mention it during recruitment because they think everyone in Switzerland get the same…

[wapiti]

Unfortunately, very very few people understand pillar 2. Most companies don’t share their plan, so it’s hard to compare.
Quite often even HR doesn’t really know the pillar 2 plan of their company.

[wavemotion]

I guess that even if I understand what my company does, I cannot change or ask to change anything?

[FIREstarter]

@wavemotion

I cannot change or ask to change anything?

You can always ask for a change. Usually, HR is the right contact for it. And yes - often times HR themselves don’t really know about P2. But that’s on them to educate themselves.

[nabalzbhf]

Normally the pension fund has employee representative, ask HR for their names.

[wavemotion]

Just got the new 2023 letter from Vita.
What are the conversion rates? Not sure if I get correctly what is really changing in 2023 to 2025 (5.7% - 5.6% - 5.5%)

[MisterB]

The conversion rate is the rate that is used to convert your accumulated capital into a pension upon retirement (for the part that you choose to receive as a pension, as opposed to a lump sum). So if you have accumulated CHF 1 million at retirement, your annual pension would be 57’000 if that retirement is in 2023 (i.e. 5.7% x 1’000’000), 56’000 if it is in 2024, etc. This type of change is happening a lot recently due to the low-interest rate environment and the overall increases in life expectancy.

Now I don’t know Vita very well, but sometimes there are more than one conversion rate. Indeed, oftentimes with insured solutions there will be one conversion factor for the mandatory/BVG part of your accumulated capital (currently 6.80% at 65/64), and another one for the so-called over-mandatory part (in your case, that could be the 5.7%, 5.6%, etc.). Based on the level of the rate though, I would guess that Vita is using a single rate (but don’t make any financial planning or decision based on this intuition! ;).

(Side note)
Interestingly, since we are unable to agree on reducing this 6.80% for now (rejected twice already in “votations”), some second pillar providers have also introduced a third conversion rate that applies to the BVG part, e.g. 6.0%. This is a kind of anticipation of an upcoming reform (because the legal rate of 6.8% is actuarially too high and should eventually change), and it works because most pension plans already provide much more than the BVG minimum. So even if you use 6.0% on the BVG part, with the over-mandatory part you still manage to stay above the BVG minimum pension overall (for most people and plans).

Hope this helps.