Pension Supplementary benefits reform: where are we going?

Supplementary benefits provide support when your pension and income don’t cover the minimum living costs. The Federal Council has initiated a reform that could have an impact on your decision between a pension and a lump-sum withdrawal.

by Emmanuel Ullmann 17 Apr 2018

In this supplementary benefits (SB) reform, the Federal Council aims to optimize the SB system with various measures and adjust it to the current circumstances. According to the Council's analysis, those retirees who can draw a full AHV pension and their occupational pension are not normally dependent on SB. This is particularly the case if you don’t live in a cost-intensive home.

At the same time, the Federal Council believes that if you draw the benefits of your obligatory occupational pension plan (berufliche Vorsorge [BVG]) in a lump sum, you’re more likely to become dependent on supplementary benefits. The Federal Council has therefore agreed to propose several legislative amendments to the Parliament that stipulate imposing restrictions on withdrawing lump sums from occupational pension plans (cf. table). A dispatch from the Federal Council was discussed by the Council of States in May 2017 and by the National Council in March 2018, with various results.

 

 

Federal Council dispatch

Federal Council dispatch

Council of States results (May 2017)

Council of States results (May 2017)

National Council results (March 2018)

National Council results (March 2018)

 

Restrictions on lump-sum payments when you enter retirement

Federal Council dispatch

Occupational pension amounts must be drawn as a pension

Council of States results (May 2017)

Same as the Federal Council

National Council results (March 2018)

No restrictions

 

Restrictions on lump-sum payments when becoming self-employed

Federal Council dispatch

Occupational pension amounts cannot be withdrawn

Council of States results (May 2017)

The amount you can withdraw from the occupational pension plan is restricted to the amount that you would get at age 50.

National Council results (March 2018)

No restrictions

Subsequent steps

Due to the varying decisions in Parliament, the bill will be put before the Council of States once again and then the National Council. If differences in opinion remain, the United Federal Assembly will make the final decision about the bill. If there is an agreement, the bill could come into force next year at the earliest. Non-mandatory occupational benefits provision and pillar 3 are excluded from the planned restrictions on lump-sum payments.

Retirement: regular pension or a lump-sum payment?

What do you do if the restrictions on lump-sum payments are implemented and you still want a 100% lump sum when you retire? The alternatives are limited. Instead of a regular pension, you can withdraw from your pension fund and have your money transferred to a vested benefits foundation. You can receive a 100% payout by doing this. But watch out: Not all pension funds allow you to withdraw when you retire. It’s worth discussing your pension fund’s rules and regulations as well as your overall retirement circumstances with your client advisor.