We show where the current pension conversion rate stands and how high it is on average. We also explain why there is a redistribution in the pension fund.
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What is the current pension conversion rate?
The current conversion rate of the pension fund is 6.8 per cent. It applies to 65-year-old men and 64-year-old women. With a conversion rate of 6.8 per cent, you will receive an annual pension of CHF 6,800 for every CHF 100,000 in retirement assets.
In the case of early retirement, the pension funds generally reduce the conversion rate by 0.15 to 0.25 per cent per year of early retirement. If you work beyond the AHV retirement age, the conversion rate is increased.
Please note: Since 2024, the normal retirement age has been 65, regardless of gender. However, there are special regulations for the retirement age for women from the AHV 21 transition generation. Further information can be found in the article on the reference age.
Why is my conversion rate lower than 6.8 per cent?
The minimum conversion rate of 6.8% only applies to the BVG mandatory portion. The pension fund is free to determine how high the conversion rate should be for the non-mandatory portion. Depending on the pension fund’s calculation model, the conversion rate may therefore be lower than 6.8%. Incidentally, the average conversion rate is 5.31%.
Development of the conversion rate
The chart below shows how the conversion rates of around 400 pension funds have developed.
Source: Swiss Pension Fund Study 2024 by Swisscanto
Development of the BVG conversion rate as a table
The conversion rate is regulated in the BVG law and has fallen since the 1st BVG revision. The development of the BVG conversion rate can be seen in the table below.
| Since | Conversion rate for women (at 64) | Conversion rate for men (at 65) |
| 01.01.2014 | 6.8 % | 6.8 % |
| 01.01.2013 | 6.8 % | 6.85 % |
| 01.01.2012 | 6.85 % | 6.9% |
| 01.01.2011 | 6.9 % | 6.95 % |
| 01.01.2010* | 6.95 % | 7 % |
| 01.01.2009 | 7 % | 7.05 % |
| 01.01.2008 | 7.1 % | 7.05 % |
| 01.01.2007 | 7.15 % | 7.1 % |
| 01.01.2006 | 7.2 % | 7.1 % |
| 01.01.1985 | 7.2 % | 7.2 % |
Why is there a redistribution in the pension fund?
If you opt for a pension, the retirement assets are converted into an annual pension at the time of retirement. As we have seen, the BVG law stipulates a minimum conversion rate of 6.8%. A credit balance of CHF 100,000 is thus utilised within 14.7 years.
Women born in 1952 will live an average of 25 years after their 65th birthday (source: Federal Statistical Office). Pension assets of CHF 100,000 are therefore not enough to finance pensions until the end of their lives. This results in a loss for the pension fund.
The pension funds can invest the retirement assets profitably on the capital markets. However, the annual returns are not sufficient to completely eliminate the conversion loss. This is because returns on the capital markets have fallen sharply since the introduction of the BVG. The yield on the 10-year Confederation bond was even negative in some cases, as the following chart shows.
Development of the yield on a 10-year Confederation bond (source: SNB)
The longer pension payments can therefore not be compensated for by higher returns on the capital markets. On the contrary, the lower returns represent an additional burden for the pension funds.
Who is affected by the pension fund redistribution?
The conversion losses in the BVG mandatory scheme are cross-financed by lower interest on retirement assets and poorer benefits in the extra-mandatory scheme. There is a redistribution from the active insured to the pensioners, as follows:
- From young to old: Not all of the return earned is credited to the retirement assets. Part of the return is used to cover the conversion losses in the BVG mandatory scheme.
- From high earners to lower earners: The extra-mandatory scheme has neither a minimum conversion rate nor a minimum interest rate. This makes the extra-mandatory scheme susceptible to redistribution. If the benefit parameters in the extra-mandatory area are lowered excessively, the extra-mandatory scheme must cross-subsidise the BVG mandatory scheme
According to figures from PPCmetrics, over 90 billion was redistributed from the working population to pensioners between 2009 and 2018. However, the 2nd pillar does not provide for any redistribution due to the system, as each person saves capital for their own retirement benefits.
What can I do about redistribution?
There are few opportunities to avoid the redistribution in the second pillar that is contrary to the system. Nevertheless, there are a few options, which we have described in separate articles:
- Think carefully about whether you want to buy into the extra-mandatory scheme.
- Ask your employer about a 1e plan. This is because 1e plans protect active insured persons from redistribution.
- Make your own provisions by investing your vested benefits account in securities.
- Plan a staggered withdrawal of 2nd and 3rd pillar pension assets and save on taxes.
Although the last option is not a proposal to avoid redistribution, it can still be very effective.
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