Does occupational pension provision deliver what it promises? Can it withstand rising life expectancy and volatile financial markets? In an analysis, Avenir Suisse shows why the 2nd pillar is a model for success.

Since the introduction of mandatory occupational benefits insurance (BVG) in 1985, over three quarters of new pensioners have benefited from 2nd pillar benefits. But how have these developed, ask the authors Sonia Estevez and Jérôme Cosandey from Avenir Suisse. «Better than it seems when looking at pensions in isolation», say the authors. According to a new analysis by Avenir Suisse, average BVG benefits fell only slightly between 2015 and 2022, depending on the method of calculation - far less than generally assumed.

Capital withdrawals increase

According to the authors, this is due to the growing importance of lump-sum withdrawals: Between 2015 and 2022, the proportion of new pensioners who had all or part of their capital paid out increased by 7 percentage points from 49% to 56%. In addition, the median amount of savings withdrawn increased from CHF 85'000 to CHF 114'000. This means that the analysis of pension withdrawals alone - without taking lump-sum withdrawals into account - distorts the balance sheet of occupational pension provision. To get a realistic picture, Avenir Suisse has calculated an 'equivalent pension'. Sonia Estevez and Jérôme Cosandey converted the capital paid out into hypothetical annual pensions and came up with some astonishing results.

Alleged sharp drop in performance is largely a phantom

If the lump-sum withdrawals made are included in these 'equivalent pensions', the decline in pensions with an average conversion rate is reduced by almost half from 9% to around 5% between 2015 and 2022. If the minimum conversion rate of 6.8% is applied, benefits actually only fall by 1%. If one takes into account the fact that pensions were paid out on average 6 months longer due to increasing life expectancy, the supposedly sharp reduction in benefits in the 2nd pillar proves to be largely a phantom, the authors conclude.

Women experience an increase in performance

Thanks to increasing labor force participation, women's benefits rose by 2% to 6% between 2015 and 2022, depending on the conversion rate - despite longer life expectancy. For men, the 'equivalent pensions' fell by between 4% and 9% in the same period, albeit also taking into account a seven-month increase in life expectancy.

Individual parameters are key

The authors emphasize that individual parameters such as degree of employment or career choice proved to be central to the 2nd pillar. However, the benefits also depend on systemic factors. The parity bodies of the pension funds could exceed the minimum requirements of the BVG or improve intergenerational equity by adjusting the technical parameters. It is important that insured persons are aware of the consequences of both their individual and collective decisions.

The funded financing of the 2nd pillar forces insured persons and pension fund bodies to deal with the consequences of such decisions. This is because they are directly reflected in the expected benefits and the funding ratio of the pension funds. And the authors conclude: «This transparency is not a weakness of the system - on the contrary. It has the advantage of counteracting the temptation of politicians to promise benefits that will have to be financed by future generations.»