Switzerland’s current minimum conversion rate for occupational pension schemes no longer reflects reality. As a result, billions of francs are being redistributed – to the detriment of younger people just entering the labour market, who are not receiving adequate interest on their accumulated contributions. This is daylight robbery.
No one any longer really questions the need to cut the conversion rate. But doing so also requires compensatory measures to cushion the blow for workers about to reach pensionable age. Mathematically, lowering the conversion rate while guaranteeing unchanged pensions can only be done via higher contributions during a pensioner’s working life, or a longer contributions period. Yet such changes would come too late for those about to reach pensionable age.
For such contributors, there are tried and tested solutions. Certainly, there is no need for centralised, bureaucratic experiments, such as compensation payments via the state pensions scheme or access to emergency pooled resources. These jeopardise the risk diversification of the entire three pillar structure, ruining efforts to date of pension funds that have acted responsibly and creating false incentives.
Decentralised solutions, to be defined by employers and employees, are far better. They take into account the requirements of individual pension funds and their members. Such solutions also offer a long term way to reinforce the responsibilities of pension fund trustees and the stability of the system.
Finally, the occupational pensions systems needs to be made more flexible. For Avenir Suisse, that means a reduction of the conversion rate, reliable special treatment for those in transition between the two sets of rules and more decentralised decision making and responsibility – particularly in terms of pension funds setting their own minimum conversion rates.
(1) Editor’s note: Switzerland operates a “three pillar” pensions system, comprising compulsory state pensions (pillar 1); occupational pensions funded by employer and employee (pillar 2); and voluntary additional contributions (pillar 3). The government sets a conversion rate (Umwandlungssatz) to calculate a contributor’s actual level of payments at pensionable age.
