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Management employee benefit scheme: Change in the law causes movement.

For more than ten years, pen­si­on insti­tu­ti­ons have been able to offer their insu­red per­sons up to ten invest­ment stra­te­gies as part of a pen­si­on plan. Howe­ver, this opti­on (under Arti­cle 1e of the “Ver­ord­nung über die beruf­li­che Vor­sor­ge”) only app­lies to sala­ry com­pon­ents abo­ve the gua­ran­tee ran­ge of the Gua­ran­tee Fund (from CHF 126,900 to CHF 846,000; sta­tus Sep­tem­ber 2016).

With 1e plans, insu­red per­sons can tailor the invest­ment stra­te­gy to their indi­vi­du­al risk pro­fi­le. Savings con­tri­bu­ti­ons are credi­ted to a per­so­nal account and inve­sted accord­ing to the cho­sen stra­te­gy. The return is allo­ca­ted exclu­si­ve­ly to the per­so­nal account; no collec­ti­ve fluc­tua­ti­on reser­ves are for­med. Espe­cial­ly in the cur­rent low-inte­rest-rate envi­ron­ment, the indi­vi­du­al invest­ment choice offers an oppor­tu­ni­ty for hig­her returns, howe­ver, the insu­red per­son also bears the risk. Sin­ce this is not to everyone’s taste, the 1e plan must offer at least one low-risk stra­te­gy.

System error is eliminated

1e plans are not very wide­ly used. One rea­son is that imple­men­ta­ti­on is asso­cia­ted with risks for the pen­si­on insti­tu­ti­on. Accord­ing to the “Frei­zü­gig­keits­ge­setz” (FZG), the insu­red per­son is gua­ran­te­ed a mini­mum with­dra­wal bene­fit. An insu­red per­son could, the­re­fo­re, choo­se a high-risk stra­te­gy and pass on later los­ses to the pen­si­on fund.

As ear­ly as 2008, Natio­nal Coun­cil­lor Jürg Stahl cal­led for this system error to be cor­rec­ted. In Decem­ber 2015, par­lia­ment deci­ded to amend the law on the free move­ment of per­sons. In August, the Federal Social Insuran­ce Office invi­ted a small group of experts to com­ment on the draft ordi­nan­ce. Among other things, the limi­ta­ti­on to only three invest­ment stra­te­gies was cri­ti­cis­ed and an adjust­ment was deman­ded. The defi­ni­ti­ve ordi­nan­ce should be published the­se days (after the edi­to­ri­al dead­line) and will come into for­ce on 1 Janu­a­ry 2017. The mini­mum vested bene­fits will no lon­ger app­ly.

In the BVG system, soli­da­ri­ty, like the joint insuran­ce of risk bene­fits, is inten­ded and desi­ra­ble. On the other hand, the redis­tri­bu­ti­on from acti­ve insu­red to pen­sio­ners, which is fun­da­ment­al­ly con­tra­ry to the system, is a con­se­quence of the rigid legal requi­re­ments in the BVG man­da­to­ry system. Hig­her life expec­tancy and low-inte­rest rates have mas­si­ve­ly aggra­va­ted the situa­ti­on and reve­a­led weak­nes­ses in the cur­rent BVG system. It is esti­ma­ted that cur­r­ent­ly 3 to 4 bil­li­on Swiss francs are redis­tri­buted annu­al­ly at the expen­se of the acti­ve insu­red.

Digital Transformation helps

Insu­red per­sons can pro­tect them­sel­ves against this with a 1e solu­ti­on. For tax opti­mi­sa­ti­on pur­po­ses, addi­tio­nal purcha­sing poten­ti­al can be crea­ted by incre­a­sing savings con­tri­bu­ti­ons. In com­bi­na­ti­on with the pro­tec­tion against redis­tri­bu­ti­on and their own choice of invest­ment stra­te­gy, volun­ta­ry purcha­ses will beco­me even more attrac­ti­ve, espe­cial­ly sin­ce they can be deduc­ted from tax­able inco­me. It is pre­cise­ly the­se advan­ta­ges that are likely to appeal to many mana­gers in SMEs and in the long term will lead to a signi­fi­cant­ly hig­her average exit bene­fit.

The intro­duc­tion of a 1e plan can result in a signi­fi­cant reduc­tion in pen­si­on obli­ga­ti­ons under IFRS and US-GAAP. This is par­ti­cu­lar­ly worth con­si­de­ring for inter­na­tio­nal com­pa­nies. Depen­ding on the degree of coverage and how free reser­ves are hand­led, a 1e solu­ti­on can also be posi­ti­ve for your own pen­si­on fund. The effects must be cla­ri­fied in advan­ce in order to rule out any nega­ti­ve effects for indi­vi­du­al inco­me groups.

With the amend­ment of the FZG, new 1e offers will be laun­ched. The digi­tal trans­for­ma­ti­on hel­ps, espe­cial­ly sin­ce modern 1e plans can be offe­red even more fle­xi­b­ly and at lower pri­ces. The pri­ce-advan­ta­ge, in par­ti­cu­lar, should not be unde­re­sti­ma­ted given the cur­rent low-inte­rest rates.

Arti­cle by Beat Bühl­mann, published in Son­der­bund Vor­sor­ge der Finanz und Wirt­schaft, Sep­tem­ber 2016. (Arti­cle has been trans­la­ted into Eng­lish)