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Old 19.09.2020, 21:55
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years of contributions and Pillar2

Hello,

For Pillar1 the year of contributions is a relevant factor for the amount of the pension one will have as a retiree.

For Pillar2 so far my understanding has been that the only relevant factor is the total amount at retirement age ( and a conversion % to monthly pension that pension funds use ). In that aspect the year of contributions per se should not matter, only the amounts contributed and the associated investment return.
However, I heard from an acquaintance that the number of contribution years do matter, ie same final amounts would get different treatments because of different number of contribution years, which is against how I perceived pillar2 to work until now. Is this accurate or my acquaintance's view of how Pillar2 works is wrong?
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Old 19.09.2020, 22:35
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Re: years of contributions and Pillar2

Pillar 2 pensions are either Defined Benefit (DB) or Defined Contribution (DC). A DB may pay a retiree a percentage of his/her income based on years of service/ contributions. An employee's capital in a DC, on the other hand, increases based on contributions and return on investment. At retirement, the capital may be paid out as a lump-sum to the retiree, paid out to the retiree as an annuity based on a legally-required percentage and an actuarially determined percentage or transferred to an insurance company for annuity payments to the retiree.

Swiss DCs are hybrid DCs since the pension provider retains risk of a minimum return on investment.
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Old 19.09.2020, 22:49
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Re: years of contributions and Pillar2

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Swiss DCs are hybrid DCs since the pension provider retains risk of a minimum return on investment.
what happens if the pension provider is unable to meet that minimum return (or is projected to be unable)?
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Old 19.09.2020, 23:35
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Re: years of contributions and Pillar2

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what happens if the pension provider is unable to meet that minimum return (or is projected to be unable)?

If the DC pension has a fluctuation reserve (Schwankungsreserve), the pension can use it in "bad years" to apply the legally-required minimum return to the members' accounts. If the pension has exhausted its fluctuation reserve, it could then fall into a deficit (Unterdeckung) and the pension board may then have to present a recovery plan (Sanierung). This recovery plan could require the sponsoring employer to inject funds into the pension to cover the deficit, among other actions.

As a side note, Swiss companies reporting under U.S. GAAP accounting principles normally place Swiss DC pension plans on the balance sheet since they are not "riskless" to the employer, unlike a true DC plan.
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Old 20.09.2020, 00:41
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Re: years of contributions and Pillar2

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what happens if the pension provider is unable to meet that minimum return (or is projected to be unable)?
It is the employees and the employer which have to pay, the current retirees are "fein raus". The pension is only lowered if unavoidable or there is no more an employer and employees. Example would be the Swissair PK, but they are doing very well and could even increase the pensions.

First the interest for those paying into the plan (a.k.a employee) is lowered. This is what kind of is happening currently and right now. Fortunately there is a legal minimum interest rate, but this only applies to the mandatory part. If the situation is really bad they can even go bellow the legal minimum.

In addition the conversion rate of new retirees will be lowered (only applies to the non mandatory part).

Then the employee and employer have to pay an additional % of the wages

If the employer has enough money, specially if it is a city, canton, or federal pension fund, they might contribute independently as well (Canton Zurich paid 2 Billion !! in its pension fund).

https://www.pensionskassenvergleich....hmen/index.php
https://sev-online.ch/de/der-sev/was...ung_pksbb.php/

PS: Defined Benefit (DB) are few and rare these days. i do not if they still exists. Most Pension plans have switchet to the DC model.
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Old 20.09.2020, 00:55
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Re: years of contributions and Pillar2

Ugh what an appalling system - a rarity for Switzerland to do things worse than elsewhere. The sooner it modernises and allows employees to manage their own retirement funds in a 401k / SIPP type arrangement the better.

I have wondered to myself - what's stopping homeowners from withdrawing funds to pay off the mortgage from their pillar 2 account and then remortgaging so that they can take the cash and invest themselves.
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Old 20.09.2020, 09:59
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Re: years of contributions and Pillar2

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I have wondered to myself - what's stopping homeowners from withdrawing funds to pay off the mortgage from their pillar 2 account and then remortgaging so that they can take the cash and invest themselves.
The fact that they need to put the money back into their 2P account in such a case. And that they can only withdraw enough to pay off only 10%.

Tom
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Old 20.09.2020, 10:02
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Re: years of contributions and Pillar2

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Ugh what an appalling system - a rarity for Switzerland to do things worse than elsewhere. The sooner it modernises and allows employees to manage their own retirement funds in a 401k / SIPP type arrangement the better.
Seeing the advice asked on investment sometimes, this is probably the better solution for a lot of people.
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Old 20.09.2020, 12:01
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Re: years of contributions and Pillar2

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The fact that they need to put the money back into their 2P account in such a case. And that they can only withdraw enough to pay off only 10%.

Tom
I was looking at https://www.ch.ch/en/withdraw-pensio...r-personal-use

"You may use your pension funds to purchase property, to repay mortgage loans or to acquire shares in a housing cooperative."

I know the 10% applies to purchasing properties but does it also apply in repaying mortgage loans?
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Old 20.09.2020, 14:02
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Re: years of contributions and Pillar2

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I was looking at https://www.ch.ch/en/withdraw-pensio...r-personal-use

"You may use your pension funds to purchase property, to repay mortgage loans or to acquire shares in a housing cooperative."

I know the 10% applies to purchasing properties but does it also apply in repaying mortgage loans?
If you make a 20% deposit yourself, I am sure the entire pension fund could be used.
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Old 20.09.2020, 14:27
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Re: years of contributions and Pillar2

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I know the 10% applies to purchasing properties but does it also apply in repaying mortgage loans?
AFAIK the rule is:
- You must finance 20% on your own
- and that at least 10% must be "hard cash", which excludes pillar 2 (but includes pillar 3a).
https://www.ubs.com/ch/en/private/mo...ase-price.html

How much pillar 2 you use is not limited.
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Old 01.10.2020, 03:11
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Re: years of contributions and Pillar2

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Pillar 2 pensions are either Defined Benefit (DB) or Defined Contribution (DC). A DB may pay a retiree a percentage of his/her income based on years of service/ contributions. An employee's capital in a DC, on the other hand, increases based on contributions and return on investment. At retirement, the capital may be paid out as a lump-sum to the retiree, paid out to the retiree as an annuity based on a legally-required percentage and an actuarially determined percentage or transferred to an insurance company for annuity payments to the retiree.

Swiss DCs are hybrid DCs since the pension provider retains risk of a minimum return on investment.
For a Swiss DC though is the years of contributions per se something that affects the pension level ? ( assuming other things are equal like level of contributions and investment performance )
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Old 01.10.2020, 10:22
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Re: years of contributions and Pillar2

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For a Swiss DC though is the years of contributions per se something that affects the pension level ? ( assuming other things are equal like level of contributions and investment performance )
Per se it is the same benefit if all the numbers are the same.

But, the mandatory part has a better pension conversion rate and AFAIK if you pay voluntarily contributions this money is attributed to the non-mandatory part. Or in other words: some one with more contributing years will have more money in the better performing mandatory part.
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