Q&A on the new Pension Fund Rules

• The conversion rate at age 65 will be reduced from 6.0% to 5.2% (for those born in 1953); it will be reduced by a further 0.01 percentage points for every birth year thereafter
• The actuarial interest rate is to be reduced from 3.0% to 2.5%
• Move from the actuarial to the generational method of calculation
• Higher savings contributions and one-off credits to soften the impact of the reduction in benefits

Like most Pension Funds also the Schindler Pension Fund is facing two major challenges:

• The continuing rise in life expectancy and consquently pensions must be paid for an increasingly long time
• historically low or even negative interest rates

The continuing rise in life expectancy and historically low or even negative interest rates pose a major challenge for pension funds. Pensions must be paid for an increasingly long time, while at the same time the return on assets is declining sharply. Having adapted the investment strategy to the new investment climate some time ago, the Board of Trustees has now decided to take steps on the benefits and contributions side to ensure the financial and structural stability of the Schindler Pension Fund in the long term.

The Board of Trustees last decided to reduce the conversion rate – in stages from 6.25% to 6.0% (at age 65) – in 2012. The transitional period for this reduction will end on December 31, 2017. In the meantime, the framework conditions for what constitutes a conversion rate that is appropriate in actuarial terms have changed markedly. There has been a further sharp fall in interest rates, with most CHF-denominated bonds now displaying negative yields to maturity, and at the same time there has been a further rise in average life expectancy. Since the BVG Occupational Pensions Act came into effect in 1985, the average life expectancy of a 65-year-old man has increased from 15 to around a further 22 years, while a 65-year-old woman can now expect to live a further 24 years, compared with 21 in 1985.

The new conversion rate has been calculated on the basis of an actuarial interest rate of 2.5% (previously 3%), and the Pension Fund will also move from the actuarial to the generational method of calculation. The latter already factors in the anticipated increase in average life expectancy for every year of birth.

The move to the generational method means that each year of birth now has its own conversion rate. The starting point is 1953. Those born in this year will turn 65 in 2018. Their conversion rate is 5.2%. The conversion rate for those born after 1953 is 0.01 percentage points lower for each year.

As in the past, the conversion rate is reduced by 0.15 percentage points per year in the event of early retirement, and increased by 0.15 percentage points per year if retirement is deferred.

If the Schindler Pension Fund's broadly diversified investment strategy, with its high proportion of real estate, succeeds in generating a long-term average return of 2.5%, these conversion rates will only have to be amended if the anticipated increase in life expectancy – which is already factored in to the generational method of calculation – is very different to the expected trend.

• Higher savings contributions
• One-off credits

The savings contributions made by all age categories from the age of 25 upwards are being increased by 1.5 percentage points. At the same time, one-off credits will be paid to insureds aged 32 and over. This credit will be based on their retirement capital on December 31, 2017.

The increase in the savings contributions will be financed as follows:

0.60 points reduction in the current contribution to administrative costs
0.90 points charged to the companies (0.55) and the insureds (0.35)
1.50 points Total increase in savings contributions
 

To significantly reduce the loss in pension benefits for older insureds, those who are aged 60 or over on December 31, 2017 will receive a one-off credit of 15.38% of the retirement capital in their accounts on that date. The credit will be made effective January 1, 2018. Those born in or after 1958 will receive a lower credit that is reduced on a straight-line basis by 0.3 percentage points per month or 3.6 percentage points per year. No credit will be paid to those born in or after 1987.

The costs of the one-off credit come to approximately CHF 72 million. The Alfred Schindler Fund will cover CHF 10 million of this figure, and a further CHF 8 million will be financed by the write-back of a provision that the Schindler Pension Fund no longer requires. A total of CHF 54 million will thus be charged to the Schindler Pension Fund's operating result. The corresponding provision will be created in the 2016 financial year, reducing the cover ratio by approximately 3.5 percentage points.

You can choose between the following three options to increase your retirement pension on a voluntary basis:

• Select / change to the Maximum contribution plan
• Voluntary contributions
• Defer retirement in consultation with the company

Those currently receiving a pension, and those retiring up to and including December 31, 2017, are not affected by the changes to the Rules that are described here. Current pensions will continue to be paid out unchanged.

The Excel tool available for download enables you to calculate your future retirement pension. To do this, you will need various figures from the insurance certificate that you received in May 2016.