Financing of occupational pension funds
The occupational pension system covers the old age, death and disability risks, and is generally financed by a funded system. This system is essentially based on individual saving capitals, which are made up of contributions paid during working life and interest earned on these contributions.
Funding method in the occupational pension system
Individual savings capital consists of contributions from employees and employers, as well as the return on assets (third contributor). Risk contributions to cover death and disability benefits come on top of this. The BVG establishes minimum requirements for pension schemes in terms of benefits (mandatory BVG scheme) and financing. The State contributes only indirectly to the financing of occupational pension provision through tax measures.
Contributions
The amount of the savings contributions and their breakdown by age group vary depending on the pension fund. The same applies to the risks contributions that cover death and disability benefits, although these do not form part of the savings capital. The general rule is that the employer's contribution must be at least equal to the sum of the contributions made by its employees.
Insured salary
In order to meet the constitutional objective for social security (three-pillar system), the benefits provided by the first and second pillars are harmonised, i.e. “coordinated”. The income relevant for mandatory occupational pension coverage is called the “coordinated” salary (gross annual salary minus the coordination deduction). There is also an entry threshold for mandatory occupational pension coverage. This is the minimum gross annual income above which a person must be insured under the occupational pension scheme. Pension funds are free to go beyond these minimum requirements (extra-mandatory pension provision). Like the benefits under the first pillar, the coordination deduction and the entry threshold are regularly adjusted in line with price and wage increases.
Asset management
Asset management in the best interests of insured people is a fundamental task of pension funds, in which the principle of fiduciary duty is of primary importance. Pension funds must ensure that they are able to pay benefits when they become due at all times. To this end, they must balance the risk and return of their investments, diversify their portfolios appropriately and take liquidity considerations into account. The Federal Council has issued investment regulations to define these requirements. Based on these regulations, each pension fund is responsible for establishing investment regulations that are appropriate to its risk profile. Responsibility for this lies solely with the pension fund's governing body.