New study with surprising findings on retirement savings behaviour.
Swiss 1e plans are a form of pension solution offering investment choice. To find out about how the market for this form of 2nd-pillar retirement saving is changing, we did a survey of providers. It revealed that there are now assets of more than CHF3.8bn invested in such plans, with providers ambitious and optimistic about future growth. Our most surprising finding was that when given the choice, employees take fewer risks with their investments than collective pension funds.
The continued rise of 1e pension provision
Unlike typical Swiss pension plans, which don’t offer such choice, 1e plans allow individual employees to choose from a range of investment strategies for earnings above a salary of CHF128k (What are 1e pension plans?). This can be an attractive way for employees to combine their private savings with pension savings. A more attractive plan also has value for employers, with the side benefits of less risk and simpler accounting. Interest in these plans is likely to grow.
1e plans are very similar to international versions of defined contribution plans. They have been an option for employers in Switzerland for more than ten years, but never really took off. In some circumstances employers had to underwrite the returns in the plan, which reduced appetite and interest.
Game-changing amendment to the law
That all changed in late 2017 when Swiss law was amended to remove this guarantee. The new law had a knock-on effect in terms of the accounting of these plans under IFRS and US GAAP financial reporting standards, increasing their attractiveness to employers.
The changes have brought a number of providers into the market. Some have been around for many years, typically providing these plans to executives, smaller employers and self-employed individuals. New players have emerged, some from traditional providers, and others in the form of start-ups. Today there are as many as seventeen providers in the market, some at very early stages of their development.
What did our survey look at?
We surveyed eleven of the most developed providers. Some companies have set up their own solution and are using specialist providers and asset managers to support these foundations; these funds were not covered in our survey.
What did we find?
The market is growing
As of 1 January 2019, 11 providers held CHF3.8bn assets under management with a total of 16,175 employees covered by these plans.
The anticipated growth is ambitious
Providers expect growth rates of around 27% per annum over the next five years, aiming to grow assets to more than CHF12.7bn in 2024.
*note: asset value shown for FY19 is as of January 1st.
Average insured members are more ‘risk averse’ than the average Swiss pension fund
The overall asset allocation of 1e plans shows that the average 1e plan member invests more in bonds and less in real estate and alternative investments than a normal pension fund with a similar exposure to equities.
Additional findings can be found in the comprehensive report:
How PwC can help
Drawing on a wealth of technical and legal know-how, our pension experts are there to:
- Help employers decide on, plan and implement 1e pension plans (see: Is the time right for a 1e plan for your Swiss higher earners?).
- Support 1e providers seeking to optimise their offerings by comparison with the market and review their compliance with Swiss pension law.