The enveloping pension fund model with a mixed conversion rate is tricky. If you do not understand the system, you should inform yourself before making a voluntary purchase, otherwise it can be expensive. This is what happened to Mr. Meier from Egerkingen.
Mr. Meier has saved his entire life to put something aside. A few years before retiring, he heard that it was possible to make voluntary payments into the pension fund. The payments could be deducted from taxes, he was told. Therefore he decided to contribute a large part of his savings to the pension fund over a period of several years. A total of CHF 100’000.
Mr. Meier is insured in a pension fund with an enveloping model. In this model, there is only one pension conversion rate, which applies equally to the credit balance in the mandatory and the supplementary plan. For Mr. Meier’s pension fund, this pension conversion rate was 5%. He therefore anticipated that by paying in CHF 100’000, he was going to receive an additional pension of CHF 5’000.
But Mr. Meier did not know that there is a statutory minimum conversion rate of 6.8 % in the mandatory model and that pension funds in the enveloping model also have to guarantee this conversion rate. Mr. Meier held a balance of CHF 300’000 in the pension fund before purchasing. All of this was in the mandatory plan. He was therefore entitled to a pension of CHF 20’400 francs and not just CHF 15’000 francs, as he assumed based on the mixed conversion rate of 5 %.
This is obviously a different situation. In fact, if the credit balance after the voluntary purchases of CHF 400’000 is multiplied by the mixed conversion rate of 5 %, this only results in a pension of CHF 20’000. Since the pension is lower than the pension from the mandatory plan (6.8 % of CHF 300’000) despite the purchases, the voluntary contributions have not led to any improvements in the pension.
Purchases by Mr. Meier would only lead to an increase in the pension from CHF 108’000:
|Compulsory||6.8 % annual pension||Total assets||5 % annual pension|
|CHF 300’000||CHF 20’400||CHF 300’000||CHF 15’000|
|CHF 300’000||CHF 20’400||CHF 400’000||CHF 20’000|
|CHF 300’000||CHF 20’400||CHF 408’000||CHF 20’400|
|CHF 300’000||CHF 20’400||CHF 500’000||CHF 25’000|
Of course, one might now recommend that Mr. Meier should simply withdraw the CHF 100’000 again in the form of a capital lump-sum. However, it was not possible for him to withdraw money from his pension fund with an enveloping model only from the extra-mandatory plan. A lump-sum withdrawal would have been charged proportionately to the compulsory and the supplementary, which would have resulted in a pension reduction.
Mr. Meier also exists in real life, only his name is different and he does not live in Egerkingen. The case has been simplified to make it easier to understand.