The pension certificate is full of specialist expressions that hardly anyone understands. No wonder, the «paper» often ends up unread in a folder. Reasons ranging from «retirement is still a long way ahead» to «there’s nothing I can do about it anyway» are likely to contribute to the lack of interest.
But that doesn’t have to be the case. After all, you can do more with your pension fund than you probably think. For example, you can use your pension fund to buy your own home. Or you can make voluntary purchases into the pension fund and thereby save taxes. Hence, it is worthwhile to understand the pension statement.
Note: For the purposes of simplicity, we will only cover contribution pension funds in this article. Defined benefit pension funds work slightly differently, but are a phase out model.
We start with something tangible, the retirement assets. It shows what you have saved so far. The retirement assets are comparable to an account balance in a savings account. The savings account contains the payments and the interest. The retirement assets are composed as follows:
- Transfer from another pension fund or vested benefits institution (when joining the pension fund).
- + employee contributions* (deducted by the employer from your gross salary and transferred to the pension fund)
- + Employer contributions* (which the employer adds to your gross salary and pays into the pension fund)
- + Voluntary purchases
- + Interest credits from the pension fund
- Advance withdrawals, for example to purchase a home
- – Divisions due to divorce
- = Retirement assets
* Employer and employee contributions are also called savings contributions or retirement credits.
The 2nd pillar is regulated by the Occupational Pensions Act. The abbreviation for this law is BVG. Within the BVG, a distinction is made between compulsory insurance, in which every employee above a certain salary must be insured and the supplementary insurance, which a company can insure voluntarily for its employees.
The portion that has been saved up to now within the framework of the BVG compulsory plan is called the BVG portion. Everything that has been saved on the salary that exceeds the BVG compulsory part belongs to the over-compulsory part. This distinction is important because the legislator stipulates minimum benefits for the mandatory plan (see conversion rate), but not for the extra-mandatory plan.
Calculation example with a salary of CHF 100’000:
|Salary portion not insured by the pension fund (already covered by the OASI)||CHF 25’095|
|Insured salary portion||CHF 60’945|
|Insured salary portion||CHF 13’960|
|Savings contribution employee e.g. 5 %||CHF 3’047.25||CHF 698.00|
|Savings contribution employee e.g. 5 %|
(but at least equal to the employee savings contribution)
|CHF 3’047.25||CHF 698.00|
|Annual credit to retirement assets||CHF 6’094.50||CHF 1’396.00|
Projected retirement assets
Usually, the pension statement also contains a projection of the retirement assets. The projection shows how high the retirement assets will be at retirement if the following conditions are met:
- The retirement assets are always credited with the same amount of interest until retirement.
- The salary and also the annual contributions to the pension fund remain unchanged.
- There are no voluntary purchases that increase the retirement assets.
So the projection is primarily there to give you a «feel» for how much would accumulate until retirement if everything remained unchanged until retirement.
The closer you get to retirement, the less the uncertainties matter. The projection thus becomes more meaningful and can also be used for pension planning.
Maximum regulatory purchase amount
The maximum regulatory purchase amount shows how much can be paid into the pension fund voluntarily and in addition to the regular monthly contributions.
The maximum purchase sum corresponds to the pension gap. A pension gap occurs if you have not made contributions in the current amount for the entire time since you started the savings process (usually at age 25), for example, because of time off or of a wage increase.
So you always start from the current insured salary and see if you paid less or nothing at all into the 2nd pillar in the past. These shortfalls can be made up by making voluntary payments to the current pension fund. This is called voluntary purchases, which can be made.
The gap that arises because you retire early can also be closed with purchases. However, this is a special category of purchases.
Voluntary purchases are popular because they can be deducted from income in the tax return. Nevertheless, voluntary purchases do not always make sense.
Purchases are registered by the pension fund by date. No capital withdrawals may be made within three years of the last purchase, otherwise there is an after tax procedure that subsequently offsets the deduction made for the voluntary purchase.
Retirement pension and conversion rate
The pension certificate also shows how high the retirement pension would be. «Would be» because you don’t know today whether the conversion rate will be lowered before you retire. This is because the conversion rate determines how high the pension will be:
- Let’s assume, for example, that the conversion rate is 6.8 %. This would result in an annual pension of CHF 6’800 from CHF 100’000 in retirement assets. At 5 %, there is only a pension of CHF 5’000 per year.
The statutory minimum conversion rate of 6.8 % applies in the BVG compulsory pension scheme. In the extra-mandatory there is no minimum conversion rate that the pension fund has to comply with. There are two different models of how these requirements are implemented in practice:
1. Split conversion rate
In this model, there are two conversion rates. One applies to the mandatory pension plan. As a rule, it corresponds to the legal minimum of 6.8 %. The other applies to the extra-mandatory and can be freely determined by the pension fund. It is usually significantly lower.
- Compulsory: 6.8 %
- Over-compulsory: can be freely determined by the pension fund, e.g. 4.0 %
|Retirementals assets||CHF 200’000||CHF 200’000||CHF 400’000|
|Coordination deduction||6.8 %||4.0 %|
|Annual pension||CHF 13’600||CHF 8’000||CHF 21’600|
2. Enveloping conversion rate
In the envelope model, there is a uniform conversion rate that applies to both the mandatory and the extra-mandatory pension plans.
- Compulsory: 5.0 %
- Over-compulsory: 5.0 %
|Retirementals assets||CHF 200’000||CHF 200’000||CHF 400’000|
|Coordination deduction||5.0 %||5.0 %|
|Annual pension||CHF 10’000||CHF 10’000||CHF 20’000|
The fact that it is possible to have a conversion rate below the legal minimum in the enveloping model is far from intuitive. However, the enveloping model is still permissible because the BVG minimum only has to be met in total:
- The total pension from mandatory and extra-mandatory together (in our example CHF 20’000) must be at least the minimum pension according to the BVG (in our example of CHF 13’600). This is already enough to meet the legal requirements.
In the extreme case, the money in the extra-mandatory pension does not contribute anything to a higher pension. Therefore, caution is advised with enveloping pension funds if one wants to make voluntary purchases.
Leistungen bei Invalidität oder Todesfall
So far, we have taken care of the savings portion of the pension fund. However, the pension fund always includes an insurance component. This covers the risks of death and disability.
As a rule, the annual pension benefits are additionally categorized according to the cause (illness or accident). Important technical terms are the following:
- Spouse / life partner pension: For unmarried persons and unregistered partnerships, a possible life partner must be notified to the pension fund before death, should this partner be a beneficiary in the event of death. Married persons and registered partners are also beneficiaries without notification.
- Waiting period: During this period since the occurrence of death or disability, no pension is yet paid out, only after the expiry of the period.
- Premium exemption: After a certain period of time, one is exempted from paying all premiums. The insurance company or pension fund takes over the contributions for the insured person, so that his pension provision can continue to be built up despite disability.
The benefits in the event of death or disability are financed via the risk premium.
Reported and insured salary
The reported salary corresponds to the gross annual salary you currently have. After subtracting the coordination deduction, the insured salary results. The pension fund contributions are calculated on the insured salary.
Depending on this, there is still an upper limit that additionally caps the insured salary.
Withdrawal benefit in case of marriage
The retirement assets saved during the marriage or the registered partnership are divided in half at the time of a divorce (regardless of the matrimonial property regime). In order to carry out such a division, it is necessary to know how much the assets were at the time of marriage. For this reason, the termination benefit at the time of marriage is recorded by each pension fund and in some cases also listed on the pension certificate.