Swiss pension outcomes are falling – could “matching” be part of the answer?

Low, even negative, interest rates and uncertain growth prospects is becoming a “new normal” in Switzerland. The impact on pension fund finances is well documented – pressure on funding levels, tough to find the right investment opportunities and focus on cost transparency. This environment also poses challenges for insured members, and as a result their employers. Expected retirement outcomes have fallen. What does this mean for employees and employers? 

10 years ago an insured person would expect higher returns on any money they invest for retirement than they would today. The mandatory interest credit for Swiss pension plans according to BVG/LPP was 2.50% in 2007 compared to 1.00% today.  Ten-year Swiss government bonds yields have fallen from 2.6% to -0.1% in the same period. This not only affects expected returns on the assets set aside but also the cost of providing an income for life after retirement. Life expectancies for retiring pensioners have increased by about 1 year for females and 2 years for males in that time which also needs to be funded.

All of these factors have had a major impact on retirement outcomes. Based on our calculations, in 2007 a 40 year-old could invest CHF 7’100 and expect a pension of a CHF 1’000 a year for that investment. Today a 40 year-old would expect to have to invest CHF 14’700 – more than doubling of the cost of retirement over 10 years. In that time, inflation expectations have also fallen, but overall the cost of retirement has increased.

What can pension funds do?

Pension funds aim according to our experience to maintain the level of retirement benefits they provide while financing the promises already made. But pension funds are in a “zero-sum” game – without extra funding, members will ultimately receive lower benefits on average when results are not what was expected. Robust analysis and forecasting of what employees can expect to receive, combined with clear communication may be the best what they can do. Other measures are down to employees and employers as recipients and sponsors of retirement benefits.

What does this mean for individuals and employers?

Find higher returns? In conventional collective Swiss plans, employees share in the overall returns of the fund as they are credited to them. This limits opportunities to take more risks, with an expectation of higher returns. For higher earnings, it is possible to have individual strategies through a “1e” pension plan. These plans can be used to seek higher returns, but this may not be suitable for all.

Later retirements? Without saving more, employees have to retire later for the same outcome.  In some ways this is only reasonable: If life expectancies increase without changing retirement ages, the proportion of life we spend in retirement rises. Employers may have to prepare for the ageing effect on their business – not only their workforce recruitment and retention, but possibly their business strategy and target markets.

Employers pay more? One answer may be employers paying more. But employers face economic challenges themselves, with increasing competition and pressure for results. For most companies, raising costs or investing cash may not be palatable.

Employees pay more? Creating more awareness of the individual options available for the employees is one option. Additional voluntary employee contributions are typically deductible for tax purposes. Some employees don’t have confidence in their pension plan and are not keen to lock away money until retirement.

How can companies create further incentives for employees to pay more? A look abroad could help.

Could “matching” be part of the solution?

In the US as well as the UK, contribution “matching” is widely used in pension plan design. Employer contributions are adjusted to “match” those of employees. When an employee contributes a percentage of their salary into the plan, the employer contributes an amount directly linked to what the employee pays. This could be 1:1 – i.e. if the employee pays 2% of pay, employer pays the same. Or some ratio like 2:1 or 1:2.

The big advantages of matching are two-fold: it encourages employees to pay more; and it focuses employer spending where it is most valued by its employees. One of our clients challenged the common Swiss plan option of employers paying the same for all employees, whereas employees can choose their level: “Why can employees choose to pay less, but I cannot follow when they do?” A reasonable question that matching helps to address.

The challenge is that legislation in Switzerland currently restricts the ability to apply matching within the regular plan. The law requires the employer contribution rate to a pension plan to be the same for all employees in the same situation (e.g. age, grade etc). “Matching” can be done through the buy-in system. So with the right plan design, matching can be incorporated within the Swiss plan.

This won’t for every situation as the use of buy-ins is subject to certain caps and restrictions which may become a barrier. Plan administration may be more complex. But in challenging times for pension outcomes, new solutions may be needed.

Contact

Richard Köppel
Pensionskassen-Experte SKPE, People and Organisation
Tel. +41 58 792 11 72
richard.koeppel@ch.pwc.com
Adrian Jones
Director, People and Organisation
Tel. +41 58 792 40 13
adrian.jones@ch.pwc.com

Fashion’s way Forward: An action plan for the hard-hit fashion industry

_MG_0210For Western fashion companies, the last few years have provided a sobering reminder of the perils of making the wrong investments. Many companies in Europe and the U.S. increased their retail store space; others invested heavily in their e-commerce websites, believing that direct sales from their own branded stores would be essential to their success. Not all of these bets were right for every company, and companies that got it wrong have been penalized heavily. Many of them are struggling with the resulting high fixed costs and diminished retail store productivity.

This is an important time for fashion companies to make sure that their strategies are clear and differentiating.

Read the whole action plan for the hard-hit fashion industry.

If you have any questions, I’m happy to hear from you.

Part 2/3: Client Onboarding Process – it’s all about efficiency, effectiveness and client experience

7 steps to build your streamlined, highly digitalized onboarding process

CyberThreatLandscapeSwitzerlandYou are struggling with a sclerotic onboarding process that is coming to its limits not only because of new regulations, but also in terms of user experience and effectiveness (Part 1/3)? PwC is providing you with a 7 step approach to transform your client onboarding into a streamlined, customizable and highly digitalized onboarding experience.

1. Status quo assessment
2. Define a vision of your future process
3. Realize improvements on different Levels
4. Cut through silos
5. Launch a pilot
6. Rollout overarching
7. Evaluate and improve process based on metrics

Get more insights about the  7 steps.

 

Please contact our experts:

DaanDr. Marcel Tschanz
PwC Partner Advisory
marcel.tschanz@ch.pwc.com
+41 79 540 60 80

DaanMarc Achhammer
PwC Director Advisory
marc.achhammer@ch.pwc.com
+41 78 850 66 66

Or our specialists:

DaanSandro Ricklin
PwC Advisory Assistant Manager
sandro.ricklin@ch.pwc.com
+41 58 792 20 01

DaanMichael Hunkeler
PwC Advisory Assistant
michael.hunkeler@ch.pwc.com
+41 58 792 16 03

Fashion’s way forward: An action plan for the hard-hit fashion industry

Executive summary

For Western fashion companies, the last few years have provided a sobering reminder of the perils of making the wrong investments. Many companies in Europe and the U.S. increased their retail store space; others invested heavily in their e-commerce websites, believing that direct sales from their own branded stores would be essential to their success. Not all of these bets were right for every company, and companies that got it wrong have been penalized heavily. Many of them are struggling with the resulting high fixed costs and diminished retail store productivity.

Develop digital abilities and opportunities

To take advantage of the industry’s fast-emerging digital ecosystems, fashion companies need to develop agile IT platforms. An agile approach to IT means greater flexibility and scalability and an ability to link to external partners and interfaces quickly. The real-time processing of internal and external data that will be enabled by these external linkages will significantly increase transparency and the accuracy of forecasting. It will also enable fashion companies to operate Strategy& 13 more efficiently across their supply chains, making step changes in speed and flexibility at a cost that is justified by the benefit. As an example, leveraging real-time sell-out data from gatekeepers’ websites helps to manage reorders and avoid out-of-stock situations.

The other capability, besides agility, that is needed as fashion companies move to fulfill their digital sales potential is a deep expertise in data analytics. Data analytics can help fashion companies figure out what happened, why, and what might work better, and make adjustments to their business. For instance, the U.K. fashion retailer Next, with £4.1 billion (US$5 billion) in annual revenue, uses Blue Yonder, an analytics software company, to help it find new customers. Data analytics can also be used to implement dynamic pricing, the on-the-fly adjustment of prices to capitalize on seasonal, time-of-day, and individual user dynamics. And a few players are pushing the boundaries of digitization even further. Google and Zalando recently showcased a pilot in which an artificial intelligence system creates a virtual design of a piece of clothing for consumers based on the consumers’ input.

Download the full report here.

Part 1/3: Client Onboarding Process – it’s all about efficiency, effectiveness and client experience

Why Banks are looking for redesigning their onboarding processes

CyberThreatLandscapeSwitzerlandThey say you do not get a second chance to make a first impression and that holds certainly true for the client onboarding at a bank. Financial institutions that optimize their onboarding process based on efficiency, effectiveness and client experience will outshine their competitors.

Not only wealthy foreigners but also Swiss retail clients are often baffled by how much time they have to invest until becoming a client of a Swiss bank. For the bank on the other side, the onboarding process means weeks or even months of spending money on increasingly complex approval processes only to realize that highly risky customers, that regulators with great scrutiny are seeking to clean the financial center of, were still onboarded.

Our clients in the banking industry point out that the rising tide of regulatory requirements made it difficult for them to balance user and client experience with efficiency along the onboarding process. Numerous regulations – such as the Foreign Account Tax Compliance Act (FATCA) or the Markets in Financial Instruments Directive II (MiFID II) – are changing the information requirements about their customers and force banks to adapt their processes and systems. However, some of them spot the opportunity in the crisis and have begun to position user experience and efficiency as potential Unique Selling Points to stop the commoditization of their service offering. PwC has been involved in putting their onboarding process through a health check and use the respective findings to lay the foundation for a differentiating value proposition that attracts customers.

PwC can support you in transforming your client onboarding from a highly fragmented, manual and time consuming process for the business and the customer into a streamlined, digitalized experience with modular customizations for the target client service models.

Please contact our experts:

DaanDr. Marcel Tschanz
PwC Partner Advisory
marcel.tschanz@ch.pwc.com
+41 79 540 60 80

 

DaanMarc Achhammer
PwC Director Advisory
marc.achhammer@ch.pwc.com
+41 78 850 66 66

Brexit from a retail and consumer perspective

R&C Trendwatch - BrexitThe UK’s historic vote on June 23 to leave the EU surprised many, both in Britain and mainland Europe. Businesses are coming to terms with the implications, especially given the uncertainty surrounding the exit process and how this will change the UK’s relationship with the EU and its other trading partners. From a retail and consumer goods sector perspective, the implications are not clear cut. There will be both challenges and opportunities, depending on a company’s structure and the extent to which it relies on access to Europe’s single market for trade and labor. This report describes how the Brexit process is likely to evolve and how Brexit will affect four areas of concern for retail and consumer businesses: the economy, trade, tax, regulation and legislation, and people and organizational strategy.

Download here the full report.

Swiss Retail in the Age of Disruption – Total Retail Switzerland 2015

_MG_0210Digital disruption has taken hold of the retail sector. In light of this, for the third consecutive year PwC has asked Swiss consumers about their shopping preferences. Our discoveries are noteworthy.

  • The Swiss are ordering online less frequently. Consumers say they making fewer purchases online than in previous years. For specific product categories such as groceries, they even seem to be returning to brick and mortar retail.
  • New segments are embracing digital. Silver surfers are growing increasingly interested in e-commerce and online social activity. And unlike Digital Natives, this demographic has the purchasing power to make a large impact on Swiss e-commerce.
  • Swiss brands are failing to embrace consumer engagement. Though many retailers maintain brand pages on social media, two-way interaction between customers and retailers in Switzerland has not taken off. Shoppers do not believe that their voices are being heard – and because of this, social media is not yet a major part of the Swiss customer experience.
  • Mobile commerce is yet to gain popularity. Though mobile use is booming, market players have been slow to reap the benefits of this development. Consumer interest in mobile commerce is low. This is largely due to meagre service offerings, which fail to convince consumers who are wary of privacy concerns.

These are some of the key findings of PwC Switzerland’s third annual Total Retail Report. This year’s publication is digital and allows you to export and play around with PwC data on consumer preferences. Visit our website to find out more. You’re in for a fascinating and stimulating experience!

If you have any questions, I’m happy to hear from you.