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The laws in Switzerland require anybody that has a job to pay tidy contributions to a pension fund, and from what I gather these pension funds are privately managed. How secure is the money I pay into these funds? Who guaranties that I will get my pension paid out as promised?
Good question. The numerous private pension funds in Switzerland are required to maintain certain levels of solvency. All pension funds are regulated by an occupational pension fund supervisory authority which has the right to intervene on behalf of protecting pension plan participants. Additionally, all pension funds are covered by the LOB Guarantee Fund, which guarantees pillar 2 retirement assets in the event of a pension fund bankruptcy.
Pension fund solvency is measured in relation to the percentage of obligations which can be filled at any time. A pension fund which has just enough money to pay out the pensions due to its members has a 100% solvency rate. If a pension fund holds enough assets to cover all pensions and still have a surplus, then it will have a coverage rate of more than 100% (110% or 130%, for example). Pension funds which cannot, at any given point, meet all of their obligations to participants have a solvency level below 100% (80% or 90%, for example).
Federal and cantonal pension schemes often experience low solvency levels, but have the added benefit of being “guarantied” by tax money to varying degrees.
A low solvency level can be temporary (in the event of fluctuations in the price of invested stock, for example), or permanent (in the event of losses). If a pension fund makes a loss, the cost of that loss is generally passed on to participants – both employers and employees.
Pension funds may cover losses by not paying interest on voluntary contributions (assets above the obligatory portion). A further measure to regain solvency is charging employers and employees additional fees which go directly towards repairing the fund and are not added to retirement assets. In extreme cases, pension funds may be allowed to pay up to 0.5% less interest on obligatory retirement assets than is required by law.
