Pensions & Health

Prospect of up to 30% more pension

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Sustainable, high-performance Pillar 2 solutions are in demand. Thanks to semi-autonomous pension fund solutions, SMEs and their staff can expect to see much higher pensions over the long term. 

The first and second pillars are intended to guarantee a retirement income of around 60% of an individual's final earnings, thereby safeguarding their customary standard of living. However, rising life expectancy, the prevailing environment of low interest rates, and the political framework are making it increasingly difficult to achieve this figure, especially in the second pillar, because interest on retirement assets and the conversion rate for extra-mandatory benefits are steadily declining. 

AXA aims to offer Swiss SMEs and their staff sustainable, high-performance Pillar 2 solutions. 

With this in mind, it switched to offering only semi-autonomous pension fund solutions rather than full-value insurance at the start of 2019. This is because the "third contributor", i.e. interest, has a far bigger impact in semi-autonomous solutions with broadly diversified asset allocations than in full-value insurance, where investment options are heavily restricted by strict regulations. 

Higher interest and more stable conversion rates

The amount of future retirement benefits depends mainly on the interest earned on the retirement capital. The difference between the statutory minimum rate of 1%, which normally applies with full-value insurance, and a rate of 2% is thus very significant. Twice the interest rate can increase a person's pension by up to 20% over the course of their working life up to retirement thanks to compound interest. This alone could mean several hundred francs more a month for some people.

On top of this, the conversion rate pIays a key role in determining how much pension people can expect when they reach retirement age based on the retirement capital they have saved.

The conversion rate for mandatory benefits is fixed by law and remains at 6.8%. This means that, for every CHF 100,000 in retirement assets, an annual pension of CHF 6,800 is paid out. The conversion rate for extra-mandatory benefits is not legally regulated; in other words, pension institutions can set their own percentage rate as they see fit. As a result, the rate for extra-mandatory benefits is often significantly lower than the 6.8% that applies for mandatory benefits. For pension funds with full-value insurance in particular, these conversion rates have been in decline for years.

CHF 1.8 billion more interest for insured persons

Semi-autonomous solutions enjoy much more freedom and flexibility than those with full-value insurance when it comes to defining their investment strategy. They have much more scope to deliver higher returns for the benefit of insured persons over the long term, especially in the current environment of low interest rates. As well as offering their active insured persons higher interest, they can also keep their extra-mandatory conversion rates stable for longer. Overall, therefore, those with a semi-autonomous occupational benefits solution have the prospect of a retirement pension that is up to 30 percent higher than with a fully insured solution. 

In the three years since the change to semi-autonomy, staff insured with AXA's semi-autonomous solutions have received a total of CHF 1.8 billion more in interest income than would have been possible with full-value insurance. 

Sustainable, high-performance Pillar 2 solutions

AXA's collective foundations are also very sound both financially and structurally, with low technical interest rates, a good age structure, a high share of extra-mandatory retirement assets, and a very low percentage of pensioners. Their low pension obligations have a significant impact in terms of reducing the redistribution of funds from active insured persons to pensioners.

AXA also cares about helping the environment and society at large with its investments and firmly believes that responsible, sustainable use of all resources adds value over the long term.

In addition, it believes that motivated, healthy staff are the key to an SME's success, which is why it offers its corporate customers attractive additional services for fringe benefits and a comprehensive program to promote employee health.

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