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Growing call for more control of retirement savings
More and more pension plan participants want to take control of their retirement provision themselves, pension experts report. This is no wonder given the holdup in reforms and the negative dynamics of Switzerland’s pension system. The 1e pension plans available within Pillar 2, although not yet widespread, offer more financial freedom and serve as an example for future innovations.
Zurich, 19 June 2018 – The UBS Retirement Index Switzerland, which measures the health of the country’s pension system, is indicating a weak pulse. The system's dynamics – based on analysis of demographic, economic and financial factors – improved slightly over the last two quarters, but remain negative. The last quarter of 2017 and the first of this year improved only marginally on the slump of the preceding 12 months. The financial position of the pension system, especially of Pillar 1, deteriorated most, with the AHV deficit increasing more than had been expected. “The latest attempts at reforming Pillar 1 will produce no sustainable solution to the problem,” explains Dr. Veronica Weisser, an economist at the UBS Global Wealth Management’s Chief Investment Office (CIO).
The reform bottleneck is also eating away at confidence in the retirement system. Pension funds and independent experts agree that people want to have more of a say in the financial decisions affecting their old age. “People increasingly are saying that they need a more individualized approach to retirement provision,” explains Prof. Dr. Lukas Müller from the University of St. Gallen.
In its new study, “Meine Vorsorge – meine Entscheidung” (“My Retirement, My Choice”) UBS Global Wealth Management's CIO highlights how people can assume more responsibility for their own retirement savings. “When it comes to individuals taking greater control of their pension provision, saving through Pillar 3a is the obvious way to go," says Jackie Bauer, economist and joint author of the study. "But there is scope within Pillar 2 for designing your own solutions that few people know about yet.”
As part of Pillar 2, 1e pension plans give participants a free choice of investment strategy, along with added security, since the capital is kept safe in a separate account. Yet participants need to be more closely involved in their pension investment decisions. And a 1e arrangement has implications for employers and pension funds, too. On the one hand, a 1e option makes the pension fund and the employer more appealing. On the other, it implies a higher administrative burden for the pension funds, which can lose some of their financial stability. Even so, this form of pension provision might be a first step toward a more individual approach.
Both reports show why Switzerland’s three-pillar system in its present form can no longer cope with the country's changing demographic structure. Today, each cohort of retirees already withdraws more from the obligatory pension system than it ever paid into it. In all likelihood, the working-age population will increase little while the number of pensioners is set to more than double. So taking your retirement provision into your own hands is a wise course of action. What is clear beyond all doubt is that reforms are imperative and that people working today who want to be certain about their living standards in retirement will need to assume more responsibility for their future.
You can find out more and read the whole study at: www.ubs.com/vorsorgeforum
UBS Switzerland AG
Jackie Bauer, economist and pensions expert
UBS Chief Investment Office GWM
Phone +41 44 239 90 61
Veronica Weisser, Head Macroeconomic and Sector Analysis Switzerland
UBS Chief Investment Office GWM
Phone +41 44 234 50 62
Daniel Kalt, Chief Economist Switzerland
UBS Chief Investment Office
Phone +41 44 234 25 60