Swiss legislator removes barriers to individualised high earner pensions
A long-awaited amendment to Switzerland’s framework for pension plans with individual investment choices has been passed by the country’s government.
The law for the so-called “1e plans” now frees providers from having to guarantee certain pension payments, if a member is transferring to another provider.
For all other accrued capital in the Swiss second pillar, pension funds have to guarantee a certain level of accrued assets upon a member leaving a pension fund. This makes transfers of members or companies from multi-employer plans very difficult.
The 1e-plans, named after the paragraph in the investment guidelines for Swiss Pensionskassen (BVV), had already been introduced in 2006.
They can only be introduced for people who earn more than 4.5 times the minimum wage for the mandatory second pillar pension as there are no guarantees on the pension payouts and individuals have to decide on an investment strategy.
Only few companies with higher earners have so far set up such plans, mainly because some legal uncertainties remained, including the question of guarantees on accrued assets in case of transfer to another pension fund (under the “Freizügigkeits” law).
PricewaterhouseCoopers commented that the newly approved exemption from guarantees meant companies may now be able to report their 1e-plans as pure defined contribution plans in their balance sheets under IFRS accounting rules.
“The guarantee was one of the main barriers to treating 1e-plans as defined contribution plans,” Adrian Jones, director at PwC Switzerland, told IPE. “The change in the law will encourage a lot more companies to set up these plans for higher earning employees as the accounting becomes simpler.
“These plans also make individual buy-ins more attractive as the employees have a choice over where their money is invested,” he added.
From 1 October 2017, when the amended legal framework comes into effect, providers will be able to offer up to 10 different investment strategies but one of them has to be “risk-free”, that is invest in domestic bonds or cash only. The current regulations did not provide guidance on how many strategies were allowed. An early government proposal for the new regulation had been criticised for specifying that only up to three strategies could be offered.
The new law also makes clearer what the maximum savings are that an employee can have under a 1e-plan. Companies with these plans may have to revisit their contribution levels.
Existing 1e-plans will have to be adapted to the new legal framework by 2019.
The government noted in a press release it will continue to work on a “clear and cost-efficient tool” to assess whether a 1e-plan is “adequate” without guarantees and with the possibility of a lower pension payout.
Further information about risks and opportunities provided by companies to employees will be checked by the regulator in the future.