Full insurance, semi-autonomous or autonomous solution – which is the right one for my company?
In principle, company owners can choose between a full-insurance solution (with a life insurance company), a semi-autonomous pension solution or setting up their own pension fund. As with every other investment decision, the relationship between security and return is crucial.
The following gives an overview of the features of the different pension models:
The full insurance solution provides the highest security. Insurance companies are legally obliged to pay at least the minimum statutory rate of interest on insured persons' BVG retirement savings on an annual basis – irrespective of whether the insurance companies themselves have generated appropriate returns on the retirement savings they invested in the capital market. A shortfall is not possible; the insurance companies are obliged to fully guarantee employee benefits at all times. A full insurance solution involves no risk for companies and enables them to focus on developing their own business.
In the case of semi-autonomous BVG solutions, the risk of death and disability is transferred to an insurance company. The investment risk is borne by the semi-autonomous foundation itself and the insured persons' retirement savings are invested directly in the capital market. The investment strategy is set by the Board of Trustees. The insured persons benefit if the strategy is successful and a respectable return is generated on the capital. However, if the strategy is not successful and the pension fund records a loss on the invested capital of its insured persons during bad financial years, the statutory interest rate still has to be paid on the mandatory BVG retirement savings. This can cause the pension fund to suffer a shortfall. It means that the pension fund would not be able to meet all its current and future obligations. The law allows for restructuring measures in cases like this (e.g. charging additional contributions or a lower interest rate) with respect to affiliated companies and their insured persons until the cover ratio returns to 100%.
Large businesses in particular often operate their own autonomous pension fund. The Board of Trustees decides on the pension fund's benefits, contributions and investment strategy within the context of the law. The company's employee benefits institution itself therefore bears the death and disability risk of its members. It has to protect surviving dependants and is responsible for the investment strategy within the limits of the law. As with full insurance and semi-autonomous solutions, the pension fund has to pay the minimum interest rate on the BVG capital, currently 1.75% (as at 2014), and pay out pensions based on the applicable conversion rates. In the case of an autonomous pension fund, the risk is therefore borne by the company itself and its employees.
The following video shows how companies require different types of insurance solution depending on their stage of development:
To find out which model suits your company best, arrange a personal consultation with an advisor.