Security in occupational pension provision: What you should pay attention to

How do you check whether your pension fund is safe? The managing director of pension fund pro shows how security works in occupational pension provision.

How can I tell if a pension fund is safe?

"A successful pension plan in the long term depends on many factors. The biggest challenge is not to rely on individual figures from the pension fund, but to get an overall picture and, in particular, to appreciate the future prospects. Those who decide solely on the basis of the funding ratio and the interest rate of the last few years may overlook important indicators. There are examples of funds with a coverage ratio of 112% or an additional interest on retirement assets, but an extraordinarily high technical interest rate of 3.5%. If only the coverage ratio or the interest rate is considered, these funds are in a good position. If the technical interest rate were reduced to a reasonable 2.00% or 1.75%, these funds might even be underfunded. A high funding ratio and a high interest rate on retirement assets are therefore no guarantee of greater security. The decisive factor is the interaction of age structure, risk/return ratio, conversion rate and technical interest rate. If you want the big picture, make sure your pension fund offers a low technical interest rate, a low conversion rate and a safe investment strategy. That may then lead to a lower funded ratio, and perhaps a lower interest rate - in favor of safety."

As an employee, what should I look out for if I want my pension fund assets to perform as positively as possible?

"As an employee, it is important that the redistribution in your own pension fund is as low as possible. In other words, active employees receive a similar interest rate as pensioners and the pension fund has a positive ratio between active employees and pensioners: the more active employees, the better. In addition, a low conversion rate is preferable. This may sound paradoxical at first: A high conversion rate guarantees a high pension at the time of retirement - but a 30-year-old still has around 35 years left in working life. And during this time, a high conversion rate means that the returns on assets earned with one's own money migrate to the prospective retirees. Did you know that, depending on the level of the conversion rate, many pension funds have to inject 20% of the capital required at retirement into the future pensioners from the returns on assets? This is a nice parting gift for the pensioners, because these are huge sums: We are talking here about 5 - 6-digit values that will be "given" to future pensioners when they retire. That's why I advise: the younger you are, the lower the conversion rate should be."

What should I look out for as an employer?

"The same applies for the employer as for the employee. In addition, one can pay attention to a low technical interest rate. Because that means that the existing pensioner capital is already very well endowed and the probability of additional contributions is smaller. In addition, an employer certainly has an interest in ensuring that the time-consuming administration is very effective and simple."

pension fund pro is considered to be extremely safe. What makes it better than others?

"pension fund pro dares to do the unpopular: high coverage ratios and high interest rates are not their priority, even though these key figures make a fund look good at first glance. The independent BVG collective foundation from central Switzerland focuses on a secure future, because a long-term view is central to them, especially in politically uncertain times such as we are currently experiencing. Accordingly, pension fund pro continues to follow the path that is still being discussed in the political arena. By the time it is implemented, it will already be one step ahead and thus in a good position. For many years, its strategy has been based on three main pillars:

1. Financial security, thanks to a good risk-return profile and a safe investment strategy,
2. the formation of fluctuation reserves before additional interest is granted, and
3. a structural security: The pension fund pro has invested in the future in recent years by reducing the technical interest rate and massively improving the ratio between active employees and pensioners. With these steps, it is ideally equipped for the future. And the problem of aging, which is common in the industry, hardly affects pension fund pro."

Do you have any further questions about your occupational pension plan? Our pension specialists gladly advise you.