The unemployed are punished in two stages. Not only will their income decrease, but their future income will be reduced. They continue to pay contributions to protect against the risk of death and disability, but they cannot make savings contributions.
When they leave their company, they leave their pension fund and their assets are placed in a vested benefits account until they find a job. This system is little known to the general public. But today, vested benefits foundations are “threatened in their survival,” Manfred Hüsler, director of the secretariat of the High Security Commission for Occupational Welfare Provisions (CHS PP), told reporters on Tuesday. What is at stake for the insured? Why are the risks increasing?
Vested benefits institutions manage 55 billion francs, divided into some 2 million accounts. This money is parked there but the insured cannot make contributions even if he wanted to.
The problem of negative rates
The need to apply to a vested benefits foundation occurs when the employee leaves abroad, manages savings intended for the acquisition of a home or to meet the wishes of self-employed unaffiliated compulsory occupational pension.
Many vested benefits foundations are backed by a bank or insurance and offer good security, according to an expert. Independent vested benefits foundations, on the other hand, cannot rely on any such institution, so that if they fail, all assets may be lost.
Also read: Covid-19 Laminates Pension Fund Reserves
“The worsening economic situation and the persistence of negative interests should lead more and more of these foundations to withdraw from the market and, in the worst case, to liquidations,” warns Manfred Hüsler. Vested benefits institutions will receive more and more money due to the labor market situation, but they cannot take advantage of it. By nature, since policyholders are only present temporarily, they place short-term funds at negative rates, but the law prohibits them from passing on this impact to policyholders, according to CHS PP.
Given the difficulty of being welcomed by vested benefits foundations, the unemployed turn to the Supplementary Institution (SI), a non-profit organization which acts on behalf of the Confederation. The SI must welcome them, but on unfavorable conditions since they are at least legal. It managed 14 billion francs at the end of 2019. The SI also suffers from negative rates that the law prevents it from passing on to the insured, said Catherine Pietrini, vice-president of CHS PP.
A quarter of the pension capital under cover
On Tuesday, the supervisory authorities also denounced the level deemed “too high” of the conversion rates, qualified as “preponderant risk of the 2nd pillar”, according to Catherine Pietrini. The rate of 6.8% is unsuited to the financial and demographic framework conditions. The result is a redistribution effect of active policyholders for the benefit of retirees, which reached 7.2 billion francs in 2019.
Also read: Miserly pension funds after a great year?
The economic crisis has penalized pension funds even though they were relatively well prepared, according to Vera Kupper Staub, president of CHS PP. The value fluctuation reserves, which are necessary to face a stock market crash, reached 65% of the target value at the end of the year.
At the end of April, a quarter of pension capital is overdrafted, compared to 1% at the end of 2019. Despite the extent of the economic damage linked to the pandemic, the coverage rate reached 105.6% at the end of April, against 111.6% at the end of last year.
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