Employees and pensions

Prospects of receiving up to 20% more retirement benefits

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Sustainable and high-performance Pillar 2 solutions are in demand. Semi-autonomous PF solutions provide SMEs and their employees with a substantially better interest rate over the long term and thus prospects of receiving higher retirement benefits. This is rounded off by a prudent investment strategy that continues to provide them with a high level of security.
 

Pillars 1 and 2 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, coupled with the prevailing low interest rate environment and political conditions, will make it increasingly difficult to achieve this figure under Pillar 2. Although the contribution made by the AHV towards an individual's retirement income has remained largely unchanged, the share contributed by Pillar 2 is increasingly lower because the interest earned on retirement assets and the conversion rate applicable to extra-mandatory benefits are steadily declining. According to the insurance model in question, these developments are impacting insureds to various degrees.

Since the start of 2019, AXA has thus only offered semi-autonomous pension fund solutions instead of full-value insurance. This is because the "third contributor", i.e. interest, has a far bigger impact in semi-autonomous solutions with balanced asset allocation than in full-value insurance, where investment options are restricted due to a tight regulatory corset. 

Higher interest – higher retirement income

Alongside the conversion rate, the amount of your future retirement benefits is mainly dependent on the interest earned on your retirement capital. It thus makes a major difference whether your retirement assets earn 1%, i.e. the BVG minimum interest rate, or 2%, which is possible with a semi-autonomous solution. 

 

Alongside the conversion rate, the amount of the future retirement benefits is mainly dependent on the interest earned on the retirement capital.

Over the course of an insured's working life up to retirement, compound interest significantly increases their retirement assets and thus their retirement benefits. The majority of those insured with semi-autonomous solutions have prospects of receiving retirement benefits from Pillar 2 that are up to 20% higher than for the same earnings under full-value insurance.  That translates into several hundred francs a month.

The switch already paid off for AXA's new semi-autonomous collective foundations and their insureds one year after the transformation: in 2019 AXA was able to pay around CHF 600 million more interest than would have been possible with the previous full-value insurance. Insureds duly benefited from a substantially higher interest rate: their retirement assets earned an average of 3.5% interest in 2019. Over the long term, AXA anticipates a long-term interest rate of 2% on average. 

Sound financial base 

AXA's collective foundations also have very sound financial and structural features, such as a high coverage ratio and low technical interest rate, an appropriate interest rate, good age structure, very low percentage of pensioners and a high share of extra-mandatory retirement assets. 

They had zero pension obligations in 2019 and relatively few in subsequent years, which also significantly reduces the redistribution from insureds to pensioners. 

"AXA's collective foundations switched to semi-autonomy with additional reserves of CHF 3 billion and a high coverage ratio and were able to further increase their fluctuation reserves in 2019. Their solid financial and structural position enables the collective foundations to offset market fluctuations over time," comments Constance Reschke, Head of Occupational Benefits at AXA Switzerland. Average applicable coverage ratios including interest were a high 111% as at the end of 2019. 

With a coverage ratio of 100% and higher, a pension fund can meet all of its obligations to its insureds. Unlike full-value insurance, temporary underfunding is permitted, which can be made up again by the capital markets over time without the need for any immediate restructuring measures. In the case of an investment loss, insureds nevertheless receive the statutory minimum interest rate on their BVG mandatory benefits. 

Prudent investment strategy

AXA pursues a risk-aware and sustainable investment strategy featuring a high degree of diversification, which gives rise to a stable performance and coverage ratio. With an equity allocation of approximately 30%, the investments made by AXA's collective foundations are defensive in nature.

AXA has always pursued a risk-aware investment strategy, with exposure to interesting asset classes.

Daniel Gussmann, Chief Investment Officer of AXA Switzerland: "The capital markets, and equity markets in particular, are regularly subject to short-term fluctuations. Occupational benefits is, however, a long-term business and is subject to a commensurate investment strategy. Given its insurance roots, AXA has always pursued a risk-aware investment strategy, with exposure to interesting asset classes like Swiss real estate and mortgages, international real estate, corporate debt, and private equity at an early stage and built up expertise that allows it to make attractive, sustainable investments for the benefit of its customers." The average applicable coverage ratio of AXA's new semi-autonomous collective foundations was still a very sound 107% as at the end of April 2020, despite stock markets plummeting due to the coronavirus crisis.

Sustained and high-performance solutions for Pillar 2

AXA aims to restore Pillar 2 to health and to offer companies and their employees sustainable and high-performance solutions under Pillar 2. 

Thomas Gerber, Head of Occupational Benefits at AXA Switzerland: "By switching to semi-autonomous solutions we can substantially reduce the redistribution from active insureds to pensioners, keep conversion rates more stable and generate better earnings opportunities for our insureds. Over the long term, our insureds have substantially better prospects of receiving higher retirement benefits at a lower total cost. Semi-autonomous solutions are more attractive, flexible and fairer in every scenario under the prevailing conditions. The market's positive response is confirmation that the switch to semi-autonomy was the right one." 

The new solutions are being very well received by SMEs: new business with effect from January 1, 2020, is five times the previous year's figure, enabling AXA's collective foundations to report growth in excess of 9%.

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