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Old 12.12.2010, 20:05
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Re: UK Final Salary Pension vs New Pension in Switzerland

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I'm ExPat from UK living in Switzerland for 4 years. I am now in negotiation to 'localise' on Swiss contract. Have been paying UK pension while here - it's a final salary scheme (hooray)... EXCEPT Swiss part of my business does not have such and I have to take a 'local' scheme.

I'd like to stay but am worried about what I'd need to do pension wise to stand any chnace to stay here when retired (42 and half way through career seems a long way behind to catch up to the natives who've been paying their Swiss scheme since 18!).

I am about to recieve 'local' offer form business and any advice on Pension considerations would be most welcome.

Nick
First the disclaimer: if you want personal, specific advice, you would need to speak to an IFA who knows both the UK and Swiss markets and I'm afraid I'm not an IFA and don't know any so cannot offer this personal advice.

That said, these are some of the things you might want to think about.

1. As you noted, you won't get a Final Salary scheme when you change jobs now. Unless you are very lucky, if you changed your job at some point in the future whilst staying in the UK you would almost certainly have to move to a money purchase scheme (aka DC, Defined Contribution scheme). If you didn't move to Switzerland now, would you be happy to stay in your current job for the rest of your career for the sake of your pension?

2. What is your UK employer's attitude to the scheme? Is it closed to new entrants? (Most are these days.) Do you know how committed they are to keeping it open to existing members? Many companies (as I'm sure you know) are stopping future entitlement building up for existing employees and moving them to DC schemes, so there is a reasonable likelihood that you may be forced into a DC scheme at some point anyway.

If you can get hold of a copy of the last pension scheme valuation report (which as a member you are entitled to) you can see what %age of salary the company should be paying and compare this to what they pay to people in the DC scheme (if they have one). This may give you an idea of how much it's costing them to support the Final Salary scheme in comparison. What you make of this information is up to you.

3. Also, what contribution rate will you and the company pay in the Swiss Scheme? UK Final Salary, UK DC and Swiss DC contribution rates are not directly comparable though, you would need to ask an IFA exactly how much you'd lose (or gain) by changing.

Consider also any matching (ie will the company contribution rate increase if you make payments yourself).

4. If you do stay in Switzerland after retirement and transfer your UK pension payments to here, you may lose out because of the exchange rate. The pound is in long term decline against the Swiss Franc I'm afraid.

5. Inflation here is much lower than the UK, so you don't need as good an absolute return, but you do want a decent real return.

6. What is the nature of the Swiss Scheme - do you have any choice over the investments or is everything in a big pot? Are there any guaranteed returns? Will the company give a guaranteed annuity rate on retirement (probably they wont do this).

7. There are various complications in Switzerland, to do with 1st, 2nd and 3rd pillar schemes. Have a search on the forum for them. I am certainly no expert on these.

8. How many years have you been paying into the current UK scheme? Were you in any other schemes before that? Do you have any private pension savings? Have you paid any AVCs (Additional Voluntary Contributions) into the current scheme? You're not playing catch up with 18 year olds as you already have a some in the UK. Unless you've been in the scheme less than two years (and even that may have changed now), you won't lose the benefits you've built up. Most of them with probably increase with inflation (RPI I think, but could now be CPI) rather than your salary (or average salary rates) once you've left (check your scheme booklet for details), which are lower increases but still some, if imperfect, inflation protection.

A few years back before leaving the UK I did some rough calculations of what %age of gross salary to contribute into a UK scheme to reproduce a 2/3 final salary on retirement around age 60-65, with contributions starting from age 25. Using some long term investment return rates and the then current market annuity rates the answer was a whopping 25-30%. Since then annuity rates have dropped (ie you get less annual income less for your money saved) and investment returns in the last 5 years have not been wonderful so the contributions would be higher. Whatever the UK calculation results, it will be different here I'm sure, so would be interested to know if anyone else has worked this out.

Happy to discuss over a beer if you're in Zurich, but as I said, I cannot give specific personal advice.

Last edited by ali_the_nomad; 12.12.2010 at 22:51. Reason: spelling, grammar, added more info
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