The majority of Swiss people receive the lion's share of their retirement income from their pension fund. Yet the importance of the 2nd pillar is underestimated. This is due to a lack of financial knowledge about occupational pensions.

For most employees, a large part of their personal assets is invested in the pension fund. This results in a large part of the income in old age. This is because every employed person saves for his or her own pension on a collective basis. However, the majority of the population does not know this, as shown by the current «Fairplay»-study by Zurich Insurance Company and Vita Sammelstiftungen. Together with the Sotomo research institute, they conducted and analyzed a representative survey of 1,600 people for the second time.

Contributions to the 2nd pillar are perceived as a fee or tax

One indication from the first study was clearly confirmed: Because BVG contributions are deducted directly from wages, many employees see them as a type of tax or levy. Although BVG payroll deductions are paid into the personal retirement savings account, only 47% of employees perceive them as an investment in their own retirement capital. 28% see it as a kind of tax ("contribution to safeguarding pensions in Switzerland") and 21% consider the contributions to be a fee that must be paid. But this lack of awareness weakens the basic idea of occupational pensions as saving for one's old age. It is also unfortunate for employers, who finance at least half of the contributions. However, employees only become aware of this benefit when they perceive investments in the 2nd pillar as savings for their own old age.

Redistribution is considered unfair by the majority

There is a great need for reform in the 2nd pillar. Currently, around half of the investment income of active insured persons is used to finance pensions, which is not provided for in the funded system of occupational pensions. But only one-third of respondents are aware of this redistribution. Therefore, the contributors among the respondents were informed about this redistribution. They were then asked about the fairness, after which 63% judged this redistribution to be unfair.

Young people hardly know anything

Young adults are much less likely to know about redistribution than older people who benefit from it. However, it is the young whose wealth accumulation is most affected in the long term due to the use of a large portion of their investment income for current pensions.

Connections need to be identified

The study authors find it worrisome that the majority of working people do not understand why they pay contributions into the 2nd pillar and what these funds are used for. "Anyone who wants to take responsibility for shaping their own future needs a basic understanding of the interrelationships in the Swiss pension system," is their verdict. They therefore consider it important to promote financial knowledge among the population at many levels: In schools, at work and through the media.

Financial literacy promotes understanding of occupational pensions

According to the authors, there is a very strong correlation between knowledge about investments and knowledge about one's own pension situation. And they are convinced: "Those who are well versed in financial products and investments are usually also well informed about their own pension situation in the 2nd pillar. This means that if you want to raise the population's awareness of the importance of the 2nd pillar, you have to invest in the population's general financial and investment knowledge."

Co-author Michael Hermann calls for more visibility and co-determination: "If awareness of and importance of occupational pensions is to be raised among the population, they must become more visible and more co-determination is needed." The assessment of the population shows that 72% of the actively insured would welcome the possibility to get an overview of the pension situation anytime and anywhere with the help of an app. Just as many would be in favor of the possibility of choosing the pension fund (72%) or the investment strategy themselves (71%). In addition to such measures, a general improvement in investment knowledge in particular would also contribute to a better understanding of the 2nd pillar.

Lack of knowledge makes people anxious

Because of the lack of financial knowledge, however, many people are suspicious of the financial markets and their risks, say the authors. Fear, however, is a bad advisor. Those who invest with a cool head know that this will most likely pay off in the long term.