Choosing the right 2nd pillar

Tirelire cochon choisie par un bras automatisé parmi d'autres
 
Faced with the multitude of offers available from pension funds, the legal obligation to affiliate employees to a provident institution is a challenge for any employer. As an independent broker, Qualibroker-Swiss Risk & Care can guide you through the complex world of occupational pensions.
 
The Swiss pension system is based on 3 pillars:
  1. State pensions
  2. Occupational pensions
  3. Private pensions
The second pillar aims to enable the elderly, survivors and invalids to maintain their previous standards of living. It supplements the 1st pillar (AVS or Al). The addition of the two annuities should make it possible to reach approximately 60% of the last salary.
 

Entering into force in 1985, the Federal Law on Occupational Retirement, Survivors and Disability (LPP) provides that “any employer with employees subject to compulsory insurance must be affiliated to a provident institution [...]” (LPP, art. 11.1). The law defines the minimum benefits for insured parties and creates more generous solutions. These are called extra-mandatory benefits. Unlike AVS and LAA, the contributions and funding for which are set out by law, the LPP leaves the employer with a considerable freedom of choice.

Choose your pension fund and pension plans

According to 2014-2018 pension fund statistics from the Federal Statistical Office, 1,562 pension funds are currently active in Switzerland. Although their number is decreasing each year, employers must make complex and consequential choices.

 

“In general, employers must decide whether to join a collective foundation, a common fund of a sectoral association, or to maintain their own foundation, says Jean-François André, LPP Brokerage Director at Qualibroker-Swiss Risk & Care. Once that first choice is made, there are three types of provident institution available, depending on the stakeholder who bears the risks: the foundation itself (independent foundation), the insurance company (foundation with full reinsurance), the foundation and the insurance (semi-autonomous foundation). The premiums and benefits will essentially determine this choice. Lastly, the employer must design their pension plan(s), a true reflection of their social policy.”
 
The Provident Commission, made up of equal numbers of employer and employee representatives, will then approve the choices.

Support by your professional pension broker

Faced with the number of solutions offered by the occupational pensions sector, we are committed to providing you with independent advice.
 
“Our knowledge of the market enables us to find the ideal solution to meet your social position and your requirements in terms of costs and services”, explains Jean-François André.
 
When substantial savings can be made, they are often reinvested in pension plans that improve benefits. This social gesture in favour of employees makes it possible to encourage savings to compensate for the drop in the conversion rate.”
 
To consolidate the pension plans of the insured party, it is also possible to set up plans chosen by employees wishing to increase their personal contributions, without financial contributions from the employer. “Providing this opportunity demonstrates the employer’s willingness to improve benefits. Their image is improved”, says Jean-François André.
 
In addition to guiding you in your choice of Institution and pension plan, Qualibroker-Swiss Risk & Care can support you on a daily basis in the day-to-day management of your contract: processing entries and transfers, information for employees, coordination with the HR team and the Payroll service provider, support in the event of long-term absences, coordination with other social insurances, etc. The LPP experts at Qualibroker-Swiss Risk & Care can assist you at all stages to simplify your decision-making processes and the management
of your occupational pensions.

On what criteria should pension plans be compared?

Here are the main elements to review when choosing the pension fund:
 
  • Types of institution
  • Degree of coverage
  • Technical foundations
  • Conversion rate
  • Yield requirements
  • Demographic report and age pyramid
  • Mathematical reserves
  • Fees
“Impact investing”: the new challenge for Swiss pension funds
 
Faced with demographic and economic developments in society which are contributing to the decline in yields, the need to reform the Swiss pension system is essential for all stakeholders. Another major but less discernible trend that is impacting the assets of occupational pension plans is the awareness of sustainable development. Explanation by Jean-François André.

How are pension funds affected by ecological awareness?

Pension funds are the largest Swiss investors. To insure the 4,245,569 working people and 798,554 retired people, they manage investments amounting to CHF 876 billion*. In our occupational pension plan broking practice, we are observing that more and more employee and employer representatives are asking their pension funds about the investments they make. Are they environmentally responsible? Our customers are starting to think about this.

How do you support companies who are on this path?

In addition to asking pension funds about the types of investments they make, we can include this criterion in future searches for customers. This can send a strong signal to institutions who will have to adapt to their customers’ requirements. Some foundations highlight their decisions not to invest in fossil fuels and armaments, for example. Only one uses “impact investing” in Switzerland. The primary objective of this investment policy is to create a positive influence regarding the environment, poverty and even local economies. Financial results are certainly hoped for, but these are not primordial in the choice of investments.

Do you think that “impact investing” will become the norm in a few years?

Without promising that this will be the case, I believe that we can expect new products to emerge that are socially and ecologically sound, and also give good prospects for returns. At a more philosophical level, the ecological conscience of our society will imply a position: are we ready to give up part of our retirement in the hope of living in a more sustainable world?
 
 
Jean-François André - Qualibroker-Swiss Risk & Care
Jean-François André is head of occupational pension brokerage at Qualibroker-Swiss Risk & Care, he is a lawyer by training and holds an MBA and CFA. He has been active in the 2nd pillar since 1988 and has managed insurance companies, provident institutions and asset management companies.