Fair play in the occupational retirement provision system
Vita and Zurich offer SMEs various models in the second pillar that optimize investment opportunities and reduce the extent of the undesired redistribution or avoid redistribution altogether.
The occupational retirement provision environment is changing dramatically: the proportion of pensioners in the total number of insured is steadily increasing, life expectancy has risen and interest rates have fallen to record lows. In addition, owing to the guarantees for pensioners, many pension plans are forced to choose very conservative investment strategies, which do not offer optimal savings potential for the working insured. All this has consequences for employees in Switzerland. "Their retirement assets are growing slower than they used to and have to last longer after retirement," explains Sandro Meyer, Head of Life and Executive Board Member of Zurich Switzerland "For many, retirement assets represent the largest part of their wealth."
Their retirement assets are growing slower than they used to and have to last longer after retirement.
Sandro Meyer, Head of Life and Member of the Executive Board of Zurich Switzerland
In order to continue to be able to finance the pensions from the second pillar, the pension institutions are having to redistribute money - from the active insured to pensioners. Insured and companies therefore no longer save only for themselves, as provided for in the second pillar, but involuntarily finance others as well. This redistribution is attracting considerable attention, but several federal reform projects have failed at the ballot box.
Parliament is currently debating a reform of both pillars again. "Until a solution capable of winning a majority is available, Vita and Zurich are using the legal leeway and, thanks to several innovations, are offering the most promising retirement provision possible," emphasizes Sandro Meyer. The four Vita Joint Foundations, Zurich and Zurich Invest Ltd. (ZIAG) are committed to more "fair play in occupational retirement provision". Together, they ensure that personal responsibility and efficiency pay off for companies and that insured can count on a sustainable retirement provision solution.
Vita and Zurich offer information about the redistribution and provide a transparent basis for decision-making on the optimal retirement provision solution. They offer investment strategies that have the potential to increase the value of the retirement savings capital. And they offer retirement provision solutions that ensure that as much of the investment income as possible also reaches the insured and is not redistributed. Every SME will find a suitable solution for its own retirement provision among the four Vita Joint foundations.
Vita Classic has further developed its successful retirement provision model for the year 2021: The previous model will be replaced by a new system consisting of a basic and an additional interest rate. In future, participation will be possible at an earlier stage. As before, the basic rate corresponds to the statutory BVG minimum interest rate. The additional interest rate is now dependent on the level and development of the cover ratio, as well as the number of years a company has been affiliated to the joint foundation. Thanks to a broadly diversified investment strategy, the Vita Joint Foundation will be able achieve stable returns in the long term. In 2020, Vita Classic recorded an above-average investment return of 5.54 percent.
The comprehensive conversion rate will be adjusted from currently 5.9 percent to 5.7 percent in 2023. Comprehensive means that the rate applies to both mandatory and non-mandatory assets. Vita Classic adjusts the actuarial interest rate to market conditions. Both measures mean fair play because they reduce redistribution in favor of working people.
In order to offer appropriate benefits to all SMEs, Vita Classic designs many aspects of the retirement provision strategy flexibly: for example, companies have the option of adjusting the coordination deduction to the degree of part-time employment or even dispensing with it altogether. This flexibility enables companies to support modern forms of work and family life. A fixed coordination deduction means that part-time employees save a smaller percentage of their salary for their retirement provision than full-time employees. In addition, companies can offer their employees more leeway in the choice of savings contributions with an optional savings plan.
The Vita Joint Foundation offers a high degree of flexibility for employees who would like to take early or partial retirement or postpone their retirement. The Vita Joint Foundation creates additional interesting incentives for employees who wish to remain gainfully employed beyond their normal retirement age: on the one hand, they receive higher pensions thanks to a higher conversion rate. On the other hand,
Vita Classic grants them flexibility in terms of savings contributions - these can be continued even if retirement is postponed. As a result, the retirement assets can continue to be accumulated.
The Vita Invest offer does not require any redistribution at all. The foundation has dispensed with excessive interest rate guarantees for retirement pensions since 2019. The retirement pension corresponds to a guaranteed basic pension, plus a contribution from the pensioners' direct participation in the investment performance. Each company has its own pension balance sheet and a specific investment strategy adapted to its risk capacity. This guarantees that the investment income is optimized and is reserved exclusively for the employees of the respective company. This is how fair play in the retirement provision system works.
The new Vita Invest has already achieved considerable success: Depending on the investment strategy of the insured companies, the foundation was able to pay interest on the retirement assets of the insured at an average of more than 4 percent for the year 2020. These rates are significantly higher than the statutory minimum interest rate of 1 percent.
A representative survey conducted by the Sotomo research institute on behalf of Zurich and Vita shows that around
36 percent of employees in Switzerland are open to models with opportunity-optimized, variable pensions - i.e. models such as those offered by Vita Invest. "With this innovation, Vita and Zurich are demonstrating that they are responding to the population's needs better than many other providers," says Sandro Meyer.
The right solution for every SME
Parliament is currently debating a reform of both pillars again. "Until a solution capable of winning a majority is available, Vita and Zurich are using the legal leeway and, thanks to several innovations, are offering the most promising retirement provision possible," emphasizes Sandro Meyer. The four Vita Joint Foundations, Zurich and Zurich Invest Ltd. (ZIAG) are committed to more "fair play in occupational retirement provision". Together, they ensure that personal responsibility and efficiency pay off for companies and that insured can count on a sustainable retirement provision solution.
Vita and Zurich offer information about the redistribution and provide a transparent basis for decision-making on the optimal retirement provision solution. They offer investment strategies that have the potential to increase the value of the retirement savings capital. And they offer retirement provision solutions that ensure that as much of the investment income as possible also reaches the insured and is not redistributed. Every SME will find a suitable solution for its own retirement provision among the four Vita Joint foundations.
Vita Classic: retirement provision model further developed
Vita Classic has further developed its successful retirement provision model for the year 2021: The previous model will be replaced by a new system consisting of a basic and an additional interest rate. In future, participation will be possible at an earlier stage. As before, the basic rate corresponds to the statutory BVG minimum interest rate. The additional interest rate is now dependent on the level and development of the cover ratio, as well as the number of years a company has been affiliated to the joint foundation. Thanks to a broadly diversified investment strategy, the Vita Joint Foundation will be able achieve stable returns in the long term. In 2020, Vita Classic recorded an above-average investment return of 5.54 percent.
The comprehensive conversion rate will be adjusted from currently 5.9 percent to 5.7 percent in 2023. Comprehensive means that the rate applies to both mandatory and non-mandatory assets. Vita Classic adjusts the actuarial interest rate to market conditions. Both measures mean fair play because they reduce redistribution in favor of working people.
In order to offer appropriate benefits to all SMEs, Vita Classic designs many aspects of the retirement provision strategy flexibly: for example, companies have the option of adjusting the coordination deduction to the degree of part-time employment or even dispensing with it altogether. This flexibility enables companies to support modern forms of work and family life. A fixed coordination deduction means that part-time employees save a smaller percentage of their salary for their retirement provision than full-time employees. In addition, companies can offer their employees more leeway in the choice of savings contributions with an optional savings plan.
The Vita Joint Foundation offers a high degree of flexibility for employees who would like to take early or partial retirement or postpone their retirement. The Vita Joint Foundation creates additional interesting incentives for employees who wish to remain gainfully employed beyond their normal retirement age: on the one hand, they receive higher pensions thanks to a higher conversion rate. On the other hand,
Vita Classic grants them flexibility in terms of savings contributions - these can be continued even if retirement is postponed. As a result, the retirement assets can continue to be accumulated.
Vita Invest: Variable pension for the greatest possible opportunity
The Vita Invest offer does not require any redistribution at all. The foundation has dispensed with excessive interest rate guarantees for retirement pensions since 2019. The retirement pension corresponds to a guaranteed basic pension, plus a contribution from the pensioners' direct participation in the investment performance. Each company has its own pension balance sheet and a specific investment strategy adapted to its risk capacity. This guarantees that the investment income is optimized and is reserved exclusively for the employees of the respective company. This is how fair play in the retirement provision system works.
The new Vita Invest has already achieved considerable success: Depending on the investment strategy of the insured companies, the foundation was able to pay interest on the retirement assets of the insured at an average of more than 4 percent for the year 2020. These rates are significantly higher than the statutory minimum interest rate of 1 percent.
A representative survey conducted by the Sotomo research institute on behalf of Zurich and Vita shows that around
36 percent of employees in Switzerland are open to models with opportunity-optimized, variable pensions - i.e. models such as those offered by Vita Invest. "With this innovation, Vita and Zurich are demonstrating that they are responding to the population's needs better than many other providers," says Sandro Meyer.
With this innovation, Vita and Zurich are demonstrating that they are responding to the population's needs better than many other providers.
Sandro Meyer, Head of Life and Member of the Executive Board of Zurich Switzerland
Conversion rate not the only decisive factor
Particularly interesting: the Vita Invest model shows that the conversion rate is often overrated in the current social discussion. A lower conversion rate does not necessarily mean that future pensions will be lower. On the contrary, a rate that is adjusted to real life expectancy and the real interest rate situation can help to ensure that retirement assets grow optimally and are not reduced by redistribution or inefficient investment decisions, as is the case today.
Vita Plus: For companies that want better insurance for their senior staff
Vita Plus is intended to supplement mandatory retirement provision and is suitable for companies in all sectors. The product offers additional risk benefits (additional lump-sum death benefit or disability benefit) and additional savings options for senior staff.
Vita Select: For companies that wish to allow their senior staff to determine their investment strategy themselves
Vita Select offers insured employees with an annual salary of 129,060 Swiss francs or more a wide range of options. They define the investment strategy and the amount of their specific savings contributions themselves. This allows employees to choose a retirement provision solution tailored to their specific life
situation.
Zurich and Vita pension studies
To provide customers and the general public with more information about the second pillar, Zurich and Vita commissioned two scientific studies in 2021.
In the study "Occupational retirement provision in Switzerland - What is a saved franc worth?" experts from the University of St.Gallen examine what benefits today's savers can expect from occupational retirement provision. Two effects are taken into account here: The redistribution from active insured to pensioners and the performance of the investment capital. In the first part, the study presents the redistribution effect and in the second part it analyzes the impact of the investment decision on the final wealth distribution and answers the question as to how much return a saved franc is likely to yield depending on the investment strategy.
As part of its market research, the Sotomo research institute asked the Swiss population about their level of knowledge on the topic of the 2nd pillar in general as well as on the topic of redistribution. The representative survey "Survey on the level of knowledge about the 2nd pillar and the topic of redistribution" compares different age groups and their economic circumstances.
Both studies will be available at vita.ch in the next few weeks.
More information is available at vita.ch/fairplay and on an ongoing basis on the social media channels:
