A company owner has an important decision to make when selecting a pension model. This decision needs to be a considered one since it affects the security of employees' pensions.
In principle, company owners can choose between a full-insurance solution (with a life insurance company), a semi-autonomous pension solution or setting up their own pension fund. As with every other investment decision, the relationship between security and return is crucial.
The full insurance solution provides the highest security. Insurance companies are legally obliged to pay at least the minimum statutory rate of interest on insured persons' BVG retirement savings on an annual basis – irrespective of whether the insurance companies themselves have generated appropriate returns on the retirement savings they invested in the capital market. A shortfall is not possible; the insurance companies are obliged to fully guarantee employee benefits at all times. A full insurance solution involves no risk for companies and enables them to focus on developing their own business.
In the case of semi-autonomous BVG solutions, the risk of death and disability is transferred to an insurance company. In the case of semi-autonomous pension solutions, the pension fund bears the investment risks itself – but also the investment opportunities. If financial market developments are positive, insured persons can benefit from a higher interest rate on retirement savings and thus expect a higher retirement pension. In good investment years, a portion of the profit also flows into a reserve used to compensate for years with insufficient financial market gains. A shortfall (cover ratio below 100%) and the associated restructuring measures cannot be ruled out, but are considered an exceptional scenario.
The investment risk is borne by the semi-autonomous foundation itself and the insured persons' retirement savings are invested directly in the capital market. The investment strategy is set by the Board of Trustees. If the strategy is successful and a respectable return is generated on the capital, the insured persons also benefit. However, if the strategy is not successful and the pension fund records a loss on the invested capital of its insured persons during bad financial years, the statutory interest rate still has to be paid on the mandatory BVG retirement savings. This can cause the pension fund to suffer a shortfall, which means that the pension fund would not be able to meet all its current and future obligations. The law allows for restructuring measures in cases like this (e.g. charging additional contributions or a lower interest rate) with respect to affiliated companies and their insured persons until the cover ratio returns to 100%.
Large businesses in particular often operate their own autonomous pension fund. The Board of Trustees decides on the pension fund's benefits, contributions and investment strategy within the framework of the law. The company's employee benefits institution itself therefore bears the death and disability risk of its members. It has to protect surviving dependants and is responsible for the investment strategy within the limits of the law. As with full insurance and semi-autonomous solutions, the pension fund has to pay the minimum interest rate on the BVG capital, which is currently 1.0 percent (as at 2020), and pay out pensions based on the applicable conversion rates. In the case of an autonomous pension fund, the risk is therefore borne by the company itself and its employees.