An ordinance and its consequences: the background to the new PensUnit collective foundation

Management pension provision
In 2017, the Federal Council revised its ordinance on choice of investment strategy (Art. 1e BVV 2). It stipulates that as of 31 December 2019, only insureds earning more than one-and-a-half times the upper limit (2019: CHF 127,980) in an employee benefits institution may select their own investment strategy. In other words, all PensFlex clients who do not meet this condition must leave the foundation. So PensExpert AG has created a new pension scheme for them: PensUnit. A conversation with pension fund expert Dominique Koch.
Reading Time: 10 Minutes
Written by
Jörg Odermatt
CEO

Dominique Koch: Do you allow exceptions when transferring clients from PensFlex to PensUnit?

As a rule, no. However, to avoid hardship cases we may allow exceptions for fixed periods, e.g. when retirement is imminent. 


Does the client benefit in any way from switching to PensUnit?

In its amendments to the ordinance, the Federal Council states that voluntary purchases in 1e plans, such as PensFlex must no longer be based on a fixed interest rate. That does not apply to PensUnit, so people can maintain their current purchasing capacity.


Nonetheless, collective fluctuation reserves must be accumulated within PensUnit. Why is that?

In contrast to a 1e solution, where each insured bears the opportunities and risks of his or her own investments, we offer our insureds a uniform strategy, a type of cover ratio solidarity. Collective fluctuation reserves are necessary to reduce the risk of a shortfall. The employer can book these deposits as an expense offering fiscal benefits.

 

What does that mean in terms of selecting an investment strategy? What other possibilities are there? Which criteria should guide the decision-making process? 

The investment strategy is determined by the pension fund’s, as well as the employer’s, risk tolerance. If there is a high collective fluctuation reserve, or the will is there to accumulate such a reserve, you can select a higher risk investment strategy.


PensUnit also allows the accumulation of employer contribution reserves. How is that organised? Do these reserves have something to offer?

Employer contribution reserves can be used to finance future employer contributions. Payments to employer contribution reserves are tax deductible. Current tax authority practice is to accept employer contribution reserve payments of up to five times the annual employer’s contribution. In the event of a shortfall, employer contribution reserves can be reclassified, subject to the employer’s agreement, as employer contribution reserves with waiver of use. That means the employer doesn’t use the employer contribution reserves as a source of financing employer contributions for the duration of the shortfall. Once the shortfall has been resolved, the employer again has unrestricted access to the employer contribution reserves.


Then the fluctuation reserves come back into play: PensUnit accepts employer contribution reserves as part of the collective fluctuation reserve, provided the employer agrees in the contract of affiliation to the reserves being reclassified as employer contribution reserves with waiver of use in the event of a shortfall.


Let us sum up once again at the end: What is the difference between the two pension models from an expert's point of view? 

The PensFlex Collective Foundation is a so-called 1e foundation that operates exclusively in the non-compulsory area. The prerequisite for admission to the foundation is a salary higher than CHF 127'980. It allows the insured member a free choice of the individual investment strategy. Each insured person is responsible for the opportunities and risks of his or her own investment. There are no guarantees. Purchasing capacity is calculated without taking interest into account. 

The PensUnit Collective Foundation is also an non-compulsory foundation. It offers the affiliated companies and their insured a supplementary pension. Wages outside the mandatory area are insurable. These salaries can be insured under both the basic and supplementary pension schemes. The prerequisite is compliance with the relevant provisions on adequacy. The investment strategy is determined by the Board of Trustees. It applies to all persons insured with the pension fund. The opportunities and risks arising from the investment of assets are borne jointly by the insured persons. The purchase is calculated at an interest rate of 2%. 


Written by
Jörg Odermatt
CEO