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Swiss schemes offset record low conversion rate with contributions

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Swiss listed companies continue to cut their conversion rates (Umwandlungssatz) and are raising employer and employee contributions to maintain benefit levels, according to a study by Towers Watson.

The consultancy found that the average conversion rate, used to calculate pension payouts, in the plans of the companies listed in the Swiss SMI index sunk from 6.6% in 2009 to 6.36%.

Among the 30 largest companies – the SLI segment – of the index, the conversion rate was even lower, at 6.32%.

This means the average conversion rate is now much lower than the legal minimum rate set for 2014 at 6.8%.

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However, pension plans managing mandatory, as well as above-mandatory, contributions can lower the conversion rate for the above-mandatory part as long as the minimum benefit level stays the same for the mandatory part.

Towers Watson said the variety of conversion rates was “surprising”, ranging from 5.49% to 7.1% for people aged 65.

Additionally, more than 80% of the SLI companies now have a conversion rate below the legal minimum – two years ago, it was only 70%.

To ensure the minimum benefit level, companies have increased contributions to the schemes, both for employers as well as employees.

Further, the consultancy found more and more companies are introducing flexible elements to their pension plans, enabling employees to choose among various contribution levels according to their own personal situations.

The average employee contribution rate has increased slightly from 4.8% in 2009 to 5.1% this year.

The question of the correct conversion rate has been on the political agenda for several years now in Switzerland and is included in the latest reform package proposed by the government.

 

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