Tech employers and second pillar?

Banks, Insurances & Third Pillar
44

Many thanks for all the information!
Every time I think I understood the second pillar, I have some (basic) new questions.
On the certificate there is the “Retirement benefits” calculated at the age of 65 (total), then it’s specified:
Interest rate BVG 1%. sur-obligatory: 1%
Conversion rate 5.5% BVG 6.8%

Here I can find the “Mandatory Part” and the “Total”. The “Mandatory part” is the 36% of the “Total”. Not sure how the calculation is done.

Then there is a calculation for the “Anticipated retirement benefits” with two columns:
Pension - Capital

Where “Pension” is the 5,5% of the “capital” and the “capital” is the same as the “Total” - “retirement benefit calculated at the age of 65 (total)”

Does this mean that at the age of 65 I can decide if get the yearly “Pension” or the lump sum of the “Capital”?
I didn’t find any number where it’s used the 6.8%

45

Yes you will be able to choose. The 5.5 and 6.8 are the rates used to calculate the pension. 6.8 will be used for the mandatory part and 5.5 for the over mandatory part. Realistically speaking by the time you reach retirement those numbers very likely will be different.

Mandatory part is for the lower part of your salary (don’t remember the numbers by heart but I think around 85k) the rest is over mandatory.

In your case both get an interest of 1%

Generally the mandatory part is strongly regulated (e.g. min interest and conversion rate) the over mandatory part less so (e.g. in your case with a worse conversion rate). Although there are cases where they even trick with the mandatory part.

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46

In his case I believe that the 5.5% applies to the whole retirement capital (as evidenced by his matching of the computed pension at 65, although the splitting approach you describe certainly exists elsewhere). The 6.8% is probably listed because no matter what the pension plan provides, the administrator always needs to make sure that the provided pension is not below the minimum pension as prescribed by the BVG.

To be precise, the pension plan’s accumulated capital and the BVG capital will always be computed in parallel. So the pension plan capital will accumulate according to its own definition of insured salary (which will include the “lower part” of the salary, roughly below 88K minus the coordination amount, but will likely include more), and its own retirement credits. The BVG capital on the other hand will accumulate (in a “shadow” account) according to the BVG insured salary (i.e. up to roughly 63K, or 29’400 x 3 minus 29’400 x 0.875), and the BVG retirement credits (i.e. 7/10/15/18).

With these two accounts, a pension provider can choose to apply different conversion rates to different parts at retirement, for instance 6.8% to the BVG or “mandatory” part, and 5.0% to the excess of the total account over the BVG one (i.e. “over-mandatory”), but you are guaranteed to always receive at least the BVG accumulated account converted at the rate of 6.8% (at least until we successfully vote to reduce it ;).

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47

Checking the certificate of Insurance and doing some reverse engineering, it seems really the case

Considering my case, is it normal then to get 5.5% for the entire amount?

48

Yes, absolutely, the 5.5% on the entire amount is what your pension plan provides. But there will always be a check in parallel to make sure that this calculated pension is not less than the minimum one prescribed by the BVG. For that one, the rate of 6.8% is much higher indeed, but it only applies to the accumulated account according to the BVG, which is usually only a fraction of the total accumulated account (because it uses its own parameters, which are usually less “generous” than those of the pension plan itself).

In your case, if I read your numbers above right, the BVG account represents only 36% of the total account (which is relatively normal). So even if you apply 6.8% to that part, the resulting pension will be lower than the pension calculated as 5.5% of the total account.

Hope that makes sense.

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49

Got it, thanks again!

50

I will seize the opportunity and will ask you following. Is it possible to withdraw the second pillar capital and leave only BVG part and ultimately get the higher conversion rate on this part of pension savings? Or there are checks to prevent this?

51

At least my pension plan thought about it: the rules state that a withdrawal depletes both BVG and over-mandatory parts proportionally. So the effective overall conversion rate remains unchanged.

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52

It’s a good question/idea. I’m not a pension administrator though, but have been professionally exposed to the field for a decent amount of time.

When it comes to proper “withdrawals” (e.g. for home ownership or in case of divorce) I believe that the effect is indeed proportional, as @jmp already pointed out, cancelling out any optimization opportunities.

For the type of “withdrawals” I believe you have in mind though, i.e. when you leave your employer, the country, or become self-employed for instance, I don’t think you can ever leave just the BVG part behind. In fact, you can never leave your vested rights in a prior pension fund in Switzerland (beyond the time limit of two years). It is extracted all at once when paid out, even if you can actually split it into various vested benefit accounts if you’d like (which usually don’t offer pensions, but even if they did, the BVG part would have been split proportionately too I presume).

That being said, I know for instance that if you cash out (or withdraw) your 2nd pillar because you left Switzerland indefinitely, the BVG part cannot actually be paid out if you have moved to a European country (not sure what the exact list is). But even in that case, you could not leave your vested rights behind in the pension fund, and would most likely need to transfer it to a vested benefit account or to the Substitute Occupational Benefit Institution (which doesn’t pay pensions either).

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