360°Benefits – Benchmarking of pension fund benefits
The political discussions on the reform of old-age provision continue. However, there is still no solution from the practical side on how to shape the future of occupational pension provision in order to cope with the growing challenges. It is therefore all the more important to reconsider existing solutions and, if necessary, to strike out in new directions.
The current edition of the SLI benchmarking study by Willis Towers Watson shows clear trends towards individualisation, on the one hand via so-called 1e plans, which offer higher-earning employees more leeway in terms of investment options. On the other hand, almost all the companies surveyed offer elective options through which employees can pay more or less into the pension fund depending on their financial situation. Conversion rates seem to be stagnating, at least for the moment. There is also hope for long-term stabilisation, as the yields on federal bonds have not fallen further, which has a direct influence on the technical interest rate and thus also on the conversion rate.
These trends in the companies we studied can be easily transferred to the general market. Individualisation tendencies can be observed throughout the market. With regard to investment performance, our observations give us hope for a positive future, as the returns achieved over the last few years have been very good. The decreasing conversion rates can be counteracted either by higher contributions or a higher interest rate. With low conversion rates, there is less redistribution between active members and pensioners; accordingly, in good investment years, the active insured can be granted higher interest rates. Contribution increases have also occurred in recent years, often by reducing risk contributions and transferring more contributions to the savings process. Additional contribution increases could put a considerable strain on the budget of employers and employees and should therefore be examined cautiously at best.
A good interest rate is therefore very decisive for good retirement benefits. And only with a well-diversified investment strategy with successful investment managers can the necessary returns be generated to ensure high interest rates in the long term. Another continuing trend is restricting pension choice at retirement age. 1e plans in particular often do not offer an annuity. Instead, the entire capital is payable as a lump sum upon retirement. However, this then requires the new pensioners to invest these funds themselves or buy an annuity in the insurance market. The investment and longevity risks are thus transferred from the pension funds to the pensioners.
What always pleases us about this study is the fact that the BVG minimum benefits are clearly exceeded by all companies. This applies to the risk benefits as well as to the retirement benefits and interest rates. The companies studied seem to be concerned about offering their employees a good occupational pension plan. However, we also see very large differences within the companies studied. The projected retirement benefits of some companies are more than twice as high as those of others.
In this study we have deliberately chosen a new structure. First, we look at the trends of recent years from the perspective of an employee. Then we look at topics that are relevant for pension funds. New analyses on investment returns and on the pensioner ratio have found their way into this study and we are pleased to share these new findings with you.
We hope you enjoy reading.
The healthy position of company balance sheets in respect of Swiss pensions continued to improve steadily through Q2.
