Why account it this way instead of a redistribution from new retirees to old retirees? (the fund makes sure that the pot of money that comes from retiree assets is enough to cover the retirees liabilities, it’s not meant to transfer from the pot of active workers)
edit: btw given other changes (life expectancy, inflation, etc), it’s really hard to compare what the actual impact on annuity is, lower annuity can still mean same average (real) return on asset.
I disagree with this statement. Since the start of the second pillar the Umwandlungssatz has always been going down, never up. It started at 7.2% in 1985, last year it was at 5.17%. Without having done any calculation and based simply on my intuition, I would claim that the longer life expectancy is not enough to explain such a decline.
Maybe I’m being cynical, but I would bet that even if we fix it at 5% it would not be sustainable and money would run out so that later retirees would get no/truncated pension.
If I understand correctly, the formula is:
Life expectancy after retirement = [ Fund / (Fund * Conversion rate)] * 100
So +13,9 years life expectancy after retirement.
So +19,3 years life expectancy after retirement.
Now we just need to look up life expectancy and compare the figures 
Edit:
Yes, it’s a mix of inflation expectation, return expectation and life expectancy changes.
Inflation has mostly been going down, life expectancy going up. In the 80s, 10y bond yields were in the 4-6% range, now it’s much lower so the fund have had to adjust (mostly be taking more risk, and increasing the investments in e.g. equity).
To be fair I’m not sure what the claim is, the world changes and the pension system had to adjust.
Yes, the rates on the mandatory part are not sustainable, but for those lucky enough to have higher salaries the impact is minimum.
When a pension fund sets its target on conversion (for the overall rate, no the mandatory one), this is based on modelling for all those variables, using the assets brought by the person who retires.
There is some pooling involved but it’s more around sequence of return and longevity risks.
(This system is very different from the 1st pillar, that one is directly funded by the workers).
edit: that’s the model for the majority of funds, there are exceptions. E.g. funds that are fully insured and the returns are guaranteed (this has a cost though, and likely has lower returns).
5% means money last for 20 years with 0% gain. I think it’s enough time for most people as return will be more than 0% anyways
Nailed it.
FYI in addition to that there was mix shift (more women entering the workforce), and women tend to have higher life expectancy (so that would increase even further).
(Also you need to take the “life expectancy given that retirement age is reached”, changes can look different than looking life expectancy at birth)
edit: Life expectancy at age 65 - 1876-2024 | Chart
1985: men 14.9, women 19
2024: men 20.4 (+5.5y, +37%), women 23 (+4y, +21%)
Thanks @markus654 and @nabalzbhf . Your explanations make sense to me.
With this understanding, the most effective lever for keeping or even increasing the Umwandlungssatz would be the adjustment of the retirement age. Unfortunately, this seems politically impossible at this point.
Or deposit more. Currently, we have the following percent of wages for LPP/BVG:
Perhaps 15% for everyone? Or 18%? The same percentage, regardless of age.
Paying more early on also helps with the compound interest effect.
Let’s FIRE before that…
A similar approach as the 3rd Pillar, but with some kind of insurance premium to cover the benefits of the current 2nd pillar. That would be great. The standard allocation would be more on the conservative side, so similar to a average pension fund today. People who want a different allocation can then do so.
Mods I thought this was a thread for pillar 2 performance not an Everymans discussion of intergenerational wealth transfer through the bvg
I very much valued the surrounding discussion. It helped me to better understand the background and basics of the performance numbers.
And it’s related. A pension funds performance (the title of this thread) also depends on the conversion rate applied to already retirees resp. the pension funds liabilities.
but if a mod want to move some posts, ok for me
Just in case someone is interested, the Confederation released data on the average pension fund performance, in 2025 it was 6.1% (compared to 7.4% in 2024). Source: https://www.admin.ch/de/newnsb/e35nqWBf0kFK
It also shows that the average coverage ratio was 117.1% (vs 114.7% in 2024). So because the coverage ratio went up, you can tell that not all the performance was given to the employees.
In fact, the average credit to employees was 4.33% (vs 3.76% in 2024).
Now you can compare your own pension fund with those averages.
Even if the full return is credited to active employees accounts, the funding ratio can still increase because the credited return applies only to active employees savings, whereas the funding ratio is calculated on the basis of the pension fund’s total assets and liabilities.
The two metrics are therefore not directly comparable.