Funding a pension in Switzerland

Jim2007

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Here (Switzerland) everyone uses: ( 65% of current income - state pension entitlement ) / 0.03

- 0.03 or 3% is the minimum return required by law on a pension fund (It is illegal for a pension fund to have a negative return)
- the outcome is made up of your company pension and private savings.
- the next step is to reduce the amount by the project value of your pension savings
- Usually a company pension accounts for 70% to 90% of the savings about, depending on the pension and years of service

At the moment I'd say the Swiss Governments projected return is probably the top end of the line, so I would not be willing to go beyond 3% in calculating the project value of pension fund savings.
 
Here (Switzerland) everyone uses: ( 65% of current income - state pension entitlement ) / 0.03

For example

Current income €100k.
65% = €65,000
- State pension in Ireland: €19,000 (for a married couple)
= €34,000
/.03 = €1.1m

Hi Jim
What is this? The projected fund which will be needed?

So my current savings are €300k
I need a fund of €800k.

Brendan
 
( 65% of current income - state pension entitlement ) / 0.03

Looks like 3% is the minimum annuity rate rather than "minimum return"

Is state pension not 233.3 x52 x2 if both get it so 24k approx?
 
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( 65% of current income - state pension entitlement ) / 0.03

Looks like 3% is the minimum annuity rate rather than "minimum return"

Is state pension not 233.3 x52 x2 if both get it so 24k approx?

On average the state pension works out at about 22K. And no the minimum return has nothing to do with the annuity rate. It is the minimum return required from the pension fund managers on a yearly basis adjusted for acceptable capital losses.
 
What is an "acceptable" capital loss?!

In Switzerland pension funds are very closely supervised and regulated. There is an entire section of the government responsible this and in may ways it acts like a the investment committee at an asset management firm. It provides guidelines on asset weightings, acceptable investment instruments etc... In very simple terms acceptable losses are those that would have befallen a model portfolio based on those guidelines. The minimum return is then applied to the pension fund and if the managers have failed to deliver up that amount, then they need to come up with the shortfall.
 
Interesting, thanks. I assume that results in managers adopting broadly similar asset allocations - something like our consensus funds.
 
Interesting, thanks. I assume that results in managers adopting broadly similar asset allocations - something like our consensus funds.

The asset allocation depends on both the rules of the pension board and the age profile of the employees. So the asset allocation and acceptable capital risks of say Google Switzerland would be very different to say one railway companies were there are a lot of people close to retirement.
 
It is the minimum return required from the pension fund managers on a yearly basis adjusted for acceptable capital losses.

Hi Jim

What does that mean? Are you saying that if I invest through a defined contribution pension fund in Switzerland, then they must give me a minimum return of 3%, after allowing for these acceptable capital losses?

How could they guarantee that? The yield on govt bonds is negative. They dividend yield is low. There would be some capital appreciation, but there would also be losses.

Would these fund managers not go bust from time to time?

Brendan
 
Hi Jim
Lots of gaps to fill for me to understand
If you move or change company what happens
Do you get a tax brake like Ireland
If you start working/Pension for first time in your early twenties and expect to finish up on the same pay an someone who started working for the first time say late twenties/ early thirties do you get a bigger tax break than say someone who started work/pension in there early twenties seeing you will need to put more in over a shorter working life if you start work/pension later in life( Defined Contribution will be different depending on age you started work/pension for first time)
Who or how is final 65% Pension target set . Needs to be set when you first start work/pension.
There must be some ceiling on how much you can fund if there is a tax break.
Do company pension/private savings funds purchasing annuity type products before people reach retirement age as a way of making sure they do not go burst
 
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