The decision by the Swiss pension fund for the employees of the canton of Zurich, BVK, to start new and more dynamic pension models in the pay-out phase next year could lead other Pensionskassen in the country to follow suit – a development that has put unions on alert.

Roger Baumann, pension fund expert and founding partner of consultancy C-Alm, said in an interview with the Tages-Anzeiger newspaper that BVK “breaks the ice” with the new pension plans, paving the way for a trend towards more flexible pension models.

Multi-employer pension institutions can potentially also start to offer individual plans  to compete with other pension funds, the news report added.

From next year, BVK will start the ‘Kombi’ model to give its members the option to withdraw an amount of pension benefits at time of retirement. From the age of 75, pensioners receive the standard pension until death.

According to BVK, this option suits members who want to invest or pay off a mortgage after retirement.

The scheme will also offer a second flexible pay-out model, the ‘Dyna’ option, in which the amount of pension benefits decrease over time from the start of the retirement phase.

Under this model, the amount of pension benefits decreases continuously up to the age of 75, then remaining constant until death.

The pension fund assumes that, under the plan, retirees are more inclined to be active immediately after retirement, and need more money for living.

Thomas Schoenbaechler, the scheme’s chief executive officer, said in an interview with Swiss Radio and Television (SRF) that he is “convinced” that it is right to offer maximum freedom of choice to members, and maximum offering of products from retirement age.

The CEO added that with the Dyna option the conversion rate used to calculate pension payouts – Umwandlungssatz – is high at the start, then dropping by 1.5% per year over a decade, then remaining low for the rest of the life of the retiree.

This means that from next year members of the pension fund can receive a pension benefit at age 65 that exceeds the normal level of pensions by around 15%, and from the age of 75 the pension benefit is approximately 5% below the normal level, until the end of the member’s life.

BVK will start offering the two pension plans, seeing members withdrawing all benefits at the beginning of retirement age puts them at risk of financial hardship later in life.

According to the Swiss Union of Public Service Personnel (VPOD), it is a hazard to assume that members need money immediately after retirement than later in life.

Benefits from social assistance and supplementary benefits are awarded in the last phase of life, namely after entering a retirement home, likely at the highest level, it added.

According to VPOD, the introduction of the new plans makes management of the pension fund more difficult, with individual forms of pensions that are “difficult to calculate”, and potentially resulting in lower benefits, it said in a statement. The union hopes BVK does not set a precedent for other pension funds in Switzerland.

PK-Netz, a platform of unions and staff associations for employees representatives on the board of trustees of Pensionskassen, said that the new pension models introduced by BVK go completely in the wrong direction.

The largest pension fund in Switzerland relies on pensions that decrease with age and a further individualisation of occupational pensions, it announced.

Instead of improving benefits for all members, BVK is focusing on further flexibility, which will continue to weaken the trust of members in the second-pillar pension system.

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