Pension funds

What benefits are covered by pension funds?

Pension funds cover benefits in the event of disability or death resulting from illness. Together with OASI, occupational pension schemes aim to ensure employees can maintain their usual standard of living in retirement.   

Occupational pension schemes contain an obligatory and a non-obligatory (voluntary) component. The obligatory part insures annual salaries up to a certain maximum amount, while the remaining part of the salary in excess of this amount is considered to be non-obligatory.

What sort of pension fund models are there?

Whether full insurance or semi-autonomous  collective foundations, companies today can choose from a wide range of options to ensure that they and their employees are covered by a pension fund. The differences between the pension fund models usually relate to the company’s involvement in selecting the capital investments and their participation in the profits from these investments. 

In recent years, large differences have emerged in terms of risk premiums and administration costs. That is why it is worthwhile for companies to regularly check their pension fund models.

Which is the right pension fund for our company?

A company’s choice of pension fund is a very important decision. That is why it is a good idea to carefully consider the issue, ideally drawing up a list of criteria.
The various factors are weighted differently depending on the needs of both the employees and the employer:

• If the focus is on costs, for example, the key factors are the risk premiums and administration costs. 
• By contrast, if the retirement benefits are most important, the applicable conversion rates are more decisive. 

Nowadays, the main factor for many companies is the relationship between the capital guarantee and the opportunity for returns.

The individual criteria can change over time. That is why it is even more important that companies regularly review their pension fund benefits and model, for example by taking a free-of-charge pension fund check.

What are the most important factors to consider when assessing pension fund solutions?

It is possible to determine how attractive a pension fund is by considering the following factors, which can then be reviewed at regular intervals: 

• Coverage ratio
• Conversion rate
• Interest on retirement assets
• Administration costs
• Ratio of active members to retirees
• Risk premium and costs

These factors should be weighted differently depending on the needs of the employees and employer.

Why should companies regularly review their pension fund solutions?

Pension funds are increasingly struggling with low interest rates and a rising life expectancy. In order to meet their pension commitments, they have to cut back on the benefits they promise.  
That is why it is important that companies take a close look at their pension funds. Although all pension funds have the same aim – to ensure they can pay their current and future pensions – in certain cases there are huge differences in terms of the interest paid on retirement assets, conversion rates and administration costs. 
By regularly reviewing your own pension fund solution, in some cases you can save on unnecessary costs, or thanks to higher interest, your pension fund assets and those of your employees will attract more interest. A pension fund check shows where there is room for improvement with your current solution.

What are the additional advantages of management pension schemes?

A modern management pension scheme offers companies and their senior staff the opportunity to pay in additional amounts to their 2nd pillar. This is advantageous as payments into management schemes increase members’ retirement assets, can help save on tax, and protect individual retirement assets from being redistributed.  

With some solutions, members even have the option of selecting the investment strategy themselves.

In which cases does it make sense for a company to operate its own company pension fund?

The main factor in determining whether it is worth a company running its own pension fund is the number of members. Since occupational pensions were introduced in 1985, regulations have tightened significantly and this increased level of complexity has led to higher administration costs. 

That is why more and more companies are opting to join a collective fund. In contrast to smaller pension funds, larger funds benefit from being able to spread their fixed administration costs across a large number of members. This means that administration costs per person do not increase or they only rise minimally.

What does "redistribution" mean in the context of occupational pension funds?

Since the introduction of occupational pensions in 1985, life expectancy has increased dramatically, while interest rates on capital markets have fallen significantly. At the same time, our society is ageing, which means that the ratio of retirees to active members is constantly increasing. 

All of this means that pension funds are now struggling to finance their retirement benefits. This means that more and more assets are having to be redistributed.  

With occupational pensions, there are two types of redistribution: 

• Redistribution from active members to retirees 
• Redistribution amongst active members.

What do you need to know about switching pension funds?

Affiliation contracts with collective foundations usually have to be terminated as of 30 June each year. If you want to make full use of the potential for optimising your company’s solution, you need to allow sufficient time for planning and follow a structured process for switching pension funds.