Do pension funds still have money when you retire?

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To receive full pension from columns 1 and 2, you must have paid a contribution of 44 years to AHV and 40 years to BVG. Your pension may be lower if you have studied to an advanced age, have not paid any contributions for a long time (eg if you have been abroad for a long time), have been absent due to illness, or have taken unpaid leave.

In extreme cases, it may fall below a subsistence income threshold. But at least the above is in your hands. What about developments that are out of your control?

Conversion rates keep falling

Example: The conversion rate for pension capital has dropped from 7.2 percent to 6.8 percent in recent years. This means that a pension capital of 100,000 francs will be converted into an old-age pension of 6,800 francs a year instead of 7,200 francs. This decline is particularly worrying for the younger generation.

“To me, 30-year-olds today are aware that their pensions will inevitably be lower as the conversion rate continues to fall,” says Albert Gallegos, head of wealth and retirement advice at Geneva Cantonal Bank. Determining the conversion rate depends not only on expected returns in the stock market, but above all on increased life expectancy.

His advice to millennials, who are now 30 to 40 years old? Better start thinking about your retirement and how your super fund manages your money now rather than tomorrow. There are large differences between private pension funds, which significantly change retirement prospects.

Youth is an advantage.

The expert highlights one advantage of young age: “Anyone with 30 years or more of work ahead of them is holding the trump card of the times. You can count on saving a relatively large amount of capital over all these years.” This is against the background of pension fund returns of 4 percent per year over the past 30 years. This isn’t a guarantee for the future, but it does offer a starting point.

Health insurance is a financial burden

Another important factor is the health insurance premiums that increase with the health expenditures of retirees. Today’s 30-year-olds are already indirectly affected by high contributions, as the monthly premium consumes an increasingly large portion of their disposable income. It is a type of tax deducted from the wages of employees to increase life expectancy. And that’s even before they feel the drop in conversion rate that pension funds will push them through.

What about rising interest rates? After all, do they promise policyholders higher bond yields? Experts hesitate to say yes. Initially, the rise in interest rates had more negative effects than positive: “The sharp rise in inflation and the sharp rise in interest rates in 2022 caused bond and stock prices to plummet, resulting in sharp declines in these asset classes.” Says Graziano Lusenti, founder and retirement expert of Lusenti Partners.

However, in the medium term, higher bond yields should improve the performance of pension funds by an average of 1 percent per year due to the elimination of negative interest rates,” Lusenti predicts.

Will the boxes be empty?

Another concern is the future financial strength of health insurers. Lusenti reassures: “When today’s 30, 40 or 50-year-olds reach retirement age, there is little fear that their pension funds will be empty in a few decades.” The expert recalls that pension funds are subject to numerous control mechanisms at various levels: actuaries for liabilities, expert advisors for investments, auditors, regional or federal foundation supervisory authorities.

Pension plans are managed on an equal basis (equal representation of employers and employees) and are very decentralized. There are organizations established by companies, professional branches, public institutions, multi-employer structures, collective foundations. “Overall, this system has largely proven its worth,” Lusenti says.

This article was originally published on the French website of Blick.ch.

Source :Blick