Swiss unions have branded flexible pension pay-outs introduced in some of the country’s second-pillar funds “a curse”, and warned the model increases both administrative workloads and costs for funds.
The topic of flexibility was among the most hotly debated topics during this month’s Swiss second pillar pension conference Fachmesse 2. Säule was the one on flexible pension pay-outs, with Doris Bianchi of union umbrella group SGB highly critical of the model.
“It is a curse for all current employees who will have to accept not knowing the level of their pension pay-out in future and for pension funds because of legal uncertainties,” she said during a debate at the conference referring to possible problems in evaluating such schemes and transferring members to other Pensionskassen.
However, two pension funds which already introduced the flexible model said they had no such problems.
The pension fund of accountancy PwC in Switzerland pioneered the model in 2005, by introducing a “bonus pension” model in which the level of pension is calculated every three years.
“We need less than an hour to set the new benchmarks every three years and adjusting the pension pay-outs is no big deal either,” Josef Bachmann, managing director at the PwC pension fund told IPE.
He confirmed that it had taken some time and resources to develop the model – “especially as we were the first” – but he stressed the positive effect this flexibilisation has on the pension fund fully justifies the costs.
Over the last years, many Swiss pension funds have been forced to adjust their technical parameters, such as the discount and the conversion rate, in order to ensure that no money from active members had to be transferred for paying out pensions to retired members.
However, amending the technical parameters only offered limited assistance, with other solutions needed to ensure sustainability of the second pillar.
One solution could be flexible pension pay-outs where only the legal minimum is guaranteed – a model similar to the one introduced by energy sector fund PKE this year.
Ronald Schnurrenberger, managing director at the PKE, confirmed the administrative effort was minimal after the initial costs for setting up a new IT system.
“Our system has been set up to ensure simple administration: The system only has five steps,” he explained, referencing target pensions of 90%, 95%, 100% – which is the target pension – 105% and 110%.
Those steps depend on the certified funding level as per year-end with the target pension being paid out if the funding level is between 100% and 120%.
This target pay-out level is also used for assessing the value of the pension fund in the company’s accounts and for possible transfers of members to other pension funds.
Schnurrenberger stressed his members understood the need for the measure and those active members on the trustee board had voted in favour of the introduction fully knowing they would be receiving only a minimum guarantee on their pension in the future.
Bianchi had argued the model helped employers save on second pillar costs as in case of underfunding retirees were covering a part of the deficit, while currently it was only the employer and the employee contributing to the recovery.
At the conference, Christoph Ryter, president of the Swiss pension federation Asip, stressed “every additional bit of room for manoeuvre” given to the trustee boards was “a good thing”.
He mentioned when the mandatory second pillar was set up in the 1980s many Pensionskassen had introduced a legal clause to cut pensions if necessary which they had to revoke after the first revision of the law governing mandatory occupational pensions in Switzerland, the BVG.
“This increased the ‘de-solidarisation’ between active members and retirees – with the introduction of a flexible pension pay-out this would be amended to a certain extent,” said Ryter.
He stressed, however, that a flexibilisation should never be introduced for pay-outs below a legal minimum.
For his fund, the Migros Pensionskasse (MPK), a flexible pension pay-out model was “no option” at the moment as “financial security is very high” and in fact the MPK remains one of the few funds to still be run as a defined benefit scheme.
Meanwhile, the Pensionskasse of Swiss railways SBB is still discussing whether or not to introduce flexible pension pay-outs and managing director Markus Hübscher said he expected a decision by the board of trustees this year.