You obviously have read way more than I have on the subject. In your opinion, should we understand that the current conversion rate of 6.8% is balanced (or even too low to be fair to new pensioneers)?
Edit: I was under the impression it was unsustainable but that is not what comes out of this report so I’ll need to dig more.
Mandatory rate is probably too high indeed, but for many funds it doesn’t have a large impact (depends on ratio of lump sum vs pension, and ratio of mandatory vs extra).
For instance even for low salary many funds are more generous than the minimum (eg insuring full salary without the coordination deduction).
Thanks, so it’s more a matter of specific funds policy and what they do with the over mandatory part (the ones I’ve seen tend to have the mix of mandatory and over mandatory at around 5.5%).
Lump sums should be redistribution neutral as the capital leaves the fund, though it may impact the risk pooling side of the pension if an overwhelming number of participants in a pension fund take it.
Any quotes / sections specifically worth reading?
Interesting, I always assumed the active/inactive redistribution was always favouring inactives. Now wonder about the high/low salaries redistribution. Is it a thing ? Given that the conversion rate and remuneration rates are different for mandatory and extra-mandatory parts.
I wish this system was simpler and would work more like pillar 3 
Thanks for this quote!
What is meant by ‘Rémunération du capital de prévoyance des assurés actifs’? Do I understand correctly that this is the interest which is paid on the capital of the workers? If so, do they calculate any interest higher than 0 as part of this rémunération? This would seem an unfair calculation to me, since I would expect my pension fund to pay a fair interest on my capital as a worker.
It’s the return on capital, which needs to be shared between retirees and workers.
Also, it is my understanding that a person who retired 10 years ago on average receives a higher pension than a person who will retire in 5-10 years. If correct, would this also point to a redistribution of money from workers to retirees?
You linked 115 pages. Suppose I don’t want to read them all, which doc/section do I skip to?
Sorry on phone and mis drafted the message, meant to reply separately.
See eg the press release:
L’analyse met cependant en lumière des différences significatives entre les divers
types d’institutions de prévoyance : le taux de couverture des institutions en concur-
rence entre elles – c’est-à-dire les institutions collectives ou communes – est en
moyenne plus bas que celui des institutions propres à une entreprise (114,5 % contre
119,5 %). Pour les institutions collectives ou communes, la stratégie de croissance
est un facteur essentiel de prise de risque : en pratique, la croissance entraîne tou-
jours une dilution des réserves de fluctuations de valeur existantes. Cela se traduit
par des taux de couverture plus bas et une capacité de risque réduite.
Yeah, when things adjust (eg low interest rate regime), some people can benefit more than other).
Basically people won a bet on interest rate/inflation change.(Moved from high interest rate/high inflation, if you locked the interest rate you won)
The balancing of pension rate started ~10/15 years ago for many pension funds? And it’s currently balanced.
In a way, that makes sense. Someone who retired 10 years ago has a different life expectancy to someone who will retire in 10 year. The longer we live, the lower the conversion rate. Without making any adjustments (retirement age), it is impossible to maintain the same conversion rate.
Isn’t this the well-articulated definition of “breaking the social contract”, though?
I understand the math, but also understand the rage of near-future and current retirees.
i guess life expectancy is slowly increasing, but i’d be surprised if there is a huge difference between people 10 years in age apart.
to the extent that life expectancy has been revised upwards, then this might have an unfair impact if this upward revision is only applied to new retirees and not adjusted retrospectively those already in retirement so bourne by all equally.
all else being equal, i’d expect newer retirees to have higher pension as they should have higher wages/contributions.
I don’t think average says anything: I understand your pension is related to your payments into the systems and the accrued interests and the conversion rate in effect. So the mandatory part should give to new retirees the same amount of money as 10 years ago retirees for the same final amount.
With my understanding above, the average simply signals that on average e.g. salaries have gone down, or number of worked years have gone down, but it is no indication of younger retirees being penalised by the system.
I might be completely wrong though… and gladly accept any further explanation
I don’t understand the connection of your answer to my question. Yes, of course the return on capital needs to be shared. But it’s not a redistribution in favor or workers instead of retirees.
Do you consider the metrics used in the report and the conclusion as justified?
So far I have had 3 pension funds. None of them insured the full salary without the coordination deduction. Do you have an idea, how many % of workers profit from such more generous pension funds?
I agree that the average is not a precise metrics and there are many more factors.
Still, there should be some metric to make an assessment if the current system is more in favor of the workers or the retirees. If such an assessment is not possible, I think this would be a clear flaw of the current system.
Why not? The capital in the fund provides two things:
In practice there’s two pools of money (even if they’re invested together), what the report says is that on average (it can be different from fund to fund, and yeah the high salary people likely skew that, since it represents bigger amounts of money where the BVG minimums have little impact) the return is tilted slightly to give more to the active workers as the total pot grows.
profond mentions something similar:
The pension capital of pensioners is nevertheless positive for Profond because:
- Pensioners are paid the BVG minimum interest rate on their pension capital in each case. Their pension capital is nevertheless invested in the market and the return benefits the actively contributing members. […]
But yes you’re right. Individually, esp. on funds with many people close to BVG minimum, there might still be redistribution in the other direction, a finer slicing might be interesting.
Also a lot of the “scare” around redistribution was from the OAK BV numbers from 2018, what the report shows is that at an aggregate level things have really improved in the last ~10y.
(and if you’re highly paid, in a company with mostly highly paid people, you probably don’t need to worry about redistribution, if anything it’s another justification to prefer lump sum over pension)
I’m not yet sure how to account for BVG minimum vs. Überobligatorium. For the sake of simplicity, I’m simply ignoring it for the moment.
Thanks. Now I think I understand. The annuity of retirees is fixed and neither inflation nor performance adjusted. This means that a great performance does not benefit retirees. Most of the results of a high performance pays a higher interest of the workers, therefore in fact creating a redistribution from retirees to workers.
Still, I would like to compare and contrast this type of redistribution with another redistribution: the lowering of the Umwandlungssatz. This means that new retirees receive a lower annuity so that the higher annuity of the existing retirees can be paid. To me, this is a clear redistribution from workers to retirees which is not accounted for in the OAK BV report.