Switzerland operates a compulsory occupational pension system for all employees which requires employers to pay at least 3.5% of insured salary into an independent pension scheme, says Jamin Robertson
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Switzerland operates a compulsory occupational pension system for all employees which requires employers to pay at least 3.5% of insured salary into an independent pension scheme.
Many defined benefit schemes still operate among public sector and large multinational companies but approximately 85% of the private sector is covered by defined contribution plans.
Switzerland is a highly insured nation, with workplace schemes in place to provide coverage for unemployment and accidents. Pension changes under review include a need for greater scheme transparency and closure of tax loopholes.
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With one of the highest per capita GDPs in the world, typical Swiss employers may be expected to offer a benefits package with more features than the iconic army knife. Pensions are the big-ticket benefit for Swiss employers, the offer of which is compulsory.
And some trends will appear familiar. As in the UK, a number of employers have moved from defined benefit (DB) to defined contribution (DC) pension plans. Paul Bonser, international practice manager for Hewitt Associates in Zurich, says: "85% of the private sector are covered under DC plans, although there are a number of DB schemes left. DC plans make up 60% of the total number.
Like [the case in] all countries, DB pensions were great when the investment returns were good." But Swiss DC schemes contain some features that UK employers would associate more with DB plans, such as guaranteed investment returns and risk benefits paid on death and disability.
"There are no pure DC plans in Switzerland," he adds. This is because Swiss DC funds have a built-in capital guarantee, and are required to grow by at least 2.25% a year. So employers aren’t stingy, with most putting more into pension schemes than the base required by law. Urs Schaffner, retirement practice leader at Mercer HR Consulting in Zurich, says Swiss organisations saw DC schemes as a chance to move away from DB pensions’ focus on final salary, and its vulnerability to inflation.
"Generally, employers would prefer to move to DC. It’s less volatile on expenses with international accounting rules," he explains. Like Britain, DB pensions remain alive and well in the public sector, with 70% of public-sector workers still being covered by such plans. A typical scheme will offer employees 60-70% of insured pay after 35-40 years of service. Further changes to Swiss pension schemes, however, may well be in the air due to a government review presently underway.
Points of discussion include raising the minimum early retirement age from 55 to 60, and greater transparency in pension scheme management. Swiss employers also typically offer a raft of insurance benefits, as required under Swiss law. "The law establishes a high level of protection for individuals overall. I believe we are the best insured people worldwide," says Schaffner. Employers are required to stump up at least part of the cost for work-related accident and disease insurance, unemployment insurance, and non-work related insurance schemes. State healthcare provision, however, means that healthcare benefits do not carry the same weight as in the UK.
Other benefits include meal vouchers and company cars, which are offered at similar levels to the UK. Multinationals tend to offer the best benefits as pharmaceutical, banking and insurance giants clamour to attract talent. Where employers must pay at least 50% of benefit costs, it is common for the big players to rustle up around two-thirds.
John Anthony, managing director of Watson Wyatt in Zurich adds that multinationals are more likely to offer extra benefits based on imported expectations. Overall, Hewitt’s Bonser notices a more collective culture, particularly when it comes to retirement planning. "There’s more risk sharing. It’s not really in [employers’] culture to shift all the pension risk to the individual."