Executive Pension Fund
Advantages of a split pension fund structure
Every employee of a Swiss company earning above the current entry threshold of CHF 22‘680 must be enrolled in the employer’s pension fund. Coverage starts at age 18 against disability risks due to illness, and from age 25, the savings process begins.
The basis for calculating these benefits is the annual salary, coordinated with the 1st pillar AHV/IV to avoid double insurance in the savings process for the retirement pension and for risk benefits. The mandatory provision and the associated minimum requirements from the Federal Law (BVG) are currently limited to salaries up to a maximum of CHF 90‘720.
Enveloping Pension Fund
Most companies insure their employees’ salaries in a single, so-called enveloping pension fund solution. This means that both the mandatory part for salaries up to CHF 90‘720 and the extra-mandatory part for salaries above this amount are insured with a single provider under the same contract.
The reasons for choosing an enveloping pension fund usually lie in the simpler administrative handling and the savings on administrative costs.
Split Pension Fund
The argument for cost savings with an enveloping solution is only partially correct, as in most cases, expenses for risk premiums can be significantly reduced with a split pension fund. This is partly because, unlike mandatory insurance, not all risks need to be insured or represented in pension form in the supplementary sector, and also because the needs of individual insured persons can be better addressed by objectively defining categories of persons.
Significant improvements include more flexibility in accessing benefits in old age, non-inclusion of existing capital in case of death to survivors’ pensions, and increased transparency in costs and returns generated.
Attractive 1e Solutions
In the area of executive pension solutions, besides the mentioned BVG salary cap of CHF 90‘720, there is another important figure: the Security Fund limit. The Security Fund, financed by all mandatory pension institutions, guarantees benefits up to 1.5 times the BVG salary cap in case of an employer or pension fund’s insolvency. Salaries above this current limit of CHF 136‘080 can be insured under a so-called BVG 1e plan, offering advantages for both employers and employees, tailored for higher-level staff.
Advantages for employers and employees
Careful Planning and Implementation Required
Choosing the optimal pension fund structure depends on many factors that should be coordinated. We are happy to guide you through the process of evaluation and implementation, and beyond.