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Two dynamic pension models from the Zurich BVK cause red heads. “Collectivity in danger,” warns the union VPOD.
Author: Charlotte Jacquemart
Imagine you are retiring and your pension fund asks: How much pension would you like to have at the beginning? A little more at the beginning and a little less later?
This is roughly what the new flexible pension models that the Zurich BVK will be offering to its 135,000 policyholders from 2024 will look like. In addition to the ordinary pension model, of course, in which the monthly pension is always the same from the age of 65 until death.
From the time of retirement, there should be maximum freedom and a maximum range of services.
“Dynamic pensions” is what BVK boss Thomas Schönbächler calls it. A novelty in the pension landscape. He explains why his fund is going in this direction with the new pension models: Insured persons are compulsorily insured for life and cannot choose their own pension fund, explains Schönbächler. From the time of retirement, there should now be maximum freedom with a maximum offer.
The BVK boss is convinced that dynamic pensions are the answer to the needs of the insured. The day-to-day advice shows that many people want more money in the first ten years of retirement than later because the radius of action is even greater.
Bit by bit or part of the capital at once
With the first model, BVK starts with a fairly high conversion rate, which then falls by 1.5 percent annually over a decade. After that, the lower movement remains for life, as Schönbächler explains. From 2024 it will be possible to draw a pension at age 65 that exceeds the normal pension by around 15 percent. From the age of 75, the pension is then around 5 percent below the normal level – until the end of life.
In the second model, part of the savings capital is withdrawn at once when you retire. From the age of 75, the pension begins again at a reasonable rate until death. According to Schönbächler, this model also meets a need: “Many have a dream when they retire: a trip around the world, a new car, paying off the mortgage and much more.”
Legend: Covering a need with dynamic pension models instead of patronizing the retirees. BVK wants to do that in 2024. Keystone/Steffen Schmidt
Both of BVK’s dynamic pension models are also a reaction to the fact that more and more insured people are having all the money paid out from the pension fund at the beginning of their pension – and then use it up too quickly and get into financial difficulties. The BVK now wants to counteract this with needs-based pensions.
You create actuarial sub-groups and do not know in advance which assets will end up in which pension portfolio.
With the new offer, the BVK causes red heads among the unions. By individualizing pensions and making them more flexible, the BVK undermines the notion of collectivity, which is what constitutes the second pillar, says Jorge Serra from the VPOD union.
Serra hopes that the BVK model will not set a precedent: “In individual cases, these models are certainly justifiable and comprehensible. But the journey is going in the wrong direction.” Because that creates actuarial sub-groups that are more complicated to calculate. Also, one does not know in advance which active members will end up in which pension portfolio, adds the trade unionist, who is also president of the BVG platform of the employees PK Netz.
It would be downright patronizing not to want to offer such models.
BVK boss Schönbächler has no understanding for the criticism from the union side. He is a very strong advocate of collectivity as long as people are in the workforce. From retirement, however, the risks could be calculated very precisely for specific people and groups of people. The collectivity will definitely not be undermined: “It would be downright paternalistic not to want to offer such models.”
Undermining the collective idea of the second pillar or paternalism? From 2024, the new BVK pensions will have to prove their worth in everyday life.