There are two systems for calculating pension fund benefits such as pensions. We explain the defined benefit plan, defined contribution plan and the combination of the two models. You will also find out which model is used most frequently.
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What is the defined benefit pension plan in Switzerland?
With the defined benefit pension plan, the amount of the pension depends on the last insured salary. The pension is therefore defined in advance and is expressed as a percentage of the last salary. Unlike the defined contribution plan, there is no minimum interest rate and no conversion rate. Here is an example:
- We assume a salary of 88,200 francs.
- The insured salary minus the coordination deduction of CHF 25,725 amounts to CHF 62,475
- 60 per cent of the insured salary then results in an annual pension of CHF 37,485.
What is the defined contribution plan?
In the defined contribution plan, the pension amount depends on how much money the insured person has saved. The retirement assets saved earn interest at the minimum interest rate in accordance with the BVG and are converted into an annual pension at the time of retirement. It is therefore only possible to predict how high the pension will be at the end of your working life.
A pension conversion rate of 6.8 per cent is currently applied in the BVG mandatory scheme. With retirement assets of CHF 100,000, this results in an annual pension of CHF 6,800.
Defined benefit plan vs. defined contribution plan: a comparison
| Defined contribution plan | Defined benefit plan | |
| Pension depends | from the amount of the contribution or the capital saved | of the insured salary |
| Financial risk lies | for the most part with the insured person | with the employer and the pension fund |
Which model is more common?
The defined benefit plan is an obsolete model. According to the Swiss Pension Fund Study by Swisscanto, only 2 per cent of pension funds still use this model. According to federal pension fund statistics, 22 per cent of insured persons were still in the defined benefit scheme in 2005.
Combination of defined contribution plan and defined benefit plan: duoprimat
Today, the combination of defined benefit pension plan and defined contribution plans is becoming increasingly popular. Two thirds of pension funds already rely on this combination, often referred to as the duoprimat. In this model, pension benefits such as the pension are calculated on a defined contribution basis, while risk benefits for disability and death are calculated on a defined benefit basis.
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