Pension reform “no vote”: no immediate impact, challenges remain

On 24 September 2017 the Swiss people and cantons rejected the proposed “AV2020” reform package. The reforms covered the 1st and 2nd pillar and were proposed by Government to increase financial stability in the system and maintain current pension levels in both pillars.

The “no vote”

Details of the rejected reforms can be found in our blog from earlier this year. The headline changes were to increase the “normal” retirement age of women from 64 to 65, increasing the earliest retirement age to 62 (with exceptions), as well as changing the pillar 2 contribution rates and minimum conversion rate to 6.0% from 6.8%. Transition arrangements were to be provided to over-45s.

Overall the changes did not get enough consensus from across the diverse political, geographical and demographic landscape of Switzerland. Campaigners for a “no” vote focused on disparities between generations with young portrayed as paying for older generations retirement. Some argued that the reforms did not go far enough. The vote and subsequent rejection shows the challenge of getting complex reforms passed through a national referendum.

What next? Potential impact of the no-vote

There are no immediate actions for employers from the “no” vote as plans do not need to be changed. But the long-term challenges that triggered the reforms remain and need to be managed:

De-risking even more important – as none of the proposed reforms come into force now, employers and funds do not need to change current plans. But the cost of retirement benefits and the risk around them continues to rise. We expect many funds to continue to face significant challenges from increasing longevity and lower (expected) asset returns, so additional measures and changes to manage benefits and risks are likely needed in the mid to long term.

Providers may reconsider providing (insured) minimum plans – the minimum guaranteed conversion rate of 6.8% remains expensive for multi-employer funds and fully insured plans to provide. Some funds will reconsider their approach and potentially pull out of providing pure legal minimum plans as the financing of such benefits becomes more and more challenging without cross-subsidies. Employers with mandatory minimum plans may find getting a provider increasingly tough.

No immediate IFRS/US GAAP pension accounting impact – companies with Swiss minimum plans or split solutions (e.g. mandatory and over-mandatory benefits are covered by different plans/funds) who report their pension obligation under international accounting standards will not “gain” from the law change as there are no automatic changes to mandatory minimum benefits.

The Swiss government will be working on a new package of reforms, but there is no timeframe for this as yet. Employers may not be able to wait and may need to review their plans now to ensure they are future proof and risks are managed.


Adrian Jones
Director, People and Organisation
Tel: +41 58 792 40 13

Richard Köppel
Pensionskassen-Experte SKPE, People and Organisation
Tel. +41 58 792 11 72

Inclusion and Diversity – how employee benefits can show you mean what you say

Diversity and inclusion is in the headlines. Boardroom representation, unconscious gender bias and equal pay are big news on the business pages. So what is diversity and inclusion (D&I)? Diversity is about all the ways we are different, our uniqueness. Inclusion is being valued for this difference. To put it simply, diversity is about being invited to the party, inclusion is about being allowed to dance.

Research shows that having a diverse and inclusive workforce improves business performance and is crucial to attracting talents. For businesses it also means you’re echoing your (diverse) customer base. Many of the best innovations have been shown to come from leveraging the organisation’s diverse employee base to generate ideas that reflect the diverse market place of today and most importantly tomorrow.

1 Source: Harvard Business Review, “How Diversity Can Drive Innovation”, December 2013
2 Source: PwC, 18th Annual Global CEO Survey, 2015
3 Source: PwC, The Female Millennial, 2016

What does this mean for HR?

HR have a key role to play in this area, both as an enabler for the CEO’s agenda, and as the organisation’s ambassador against reputation damage inside and outside the business. HR are best placed to understand the different needs of a diverse population of employees, and execute the changes needed to foster an inclusive workplace.

What are those needs? It’s recognising “one size does not fit all”, particularly when it comes to policies and benefits. Some employees value career progression, others focus on wages, while many will want to understand the flexible benefit arrangements offered. How you provide for these diverse needs affects both the talent that you want to retain within your organisation and the employer brand to prospective talents.

We were recently asked: What does diversity and inclusion mean for the benefits we offer employees? Benefits can be grouped as “intangible” benefits, which have an unclear cost and benefit, but can be highly valued, and traditional employee benefits like retirement, insurances and other offers. Both can play a big part in fostering diversity and inclusion. The design of benefit packages and offers can incentivise and support the change we want to see in our workforce whether this is ensuring our pension plans accept same-sex partnerships, flexibility around religious holidays or even allowing adoption leave.

Intangible benefits – hidden value?

Each employee will value intangible benefits very differently, some seeing no real value while others may see this as key when choosing an employer. Many employers forget that intangible benefits can have the biggest value to employees, but at the lowest cost. And these benefits can be essential to a diverse workforce. Here are some examples:

  • Flexible working culture – What is your policy on working from home? How do you ensure that technology is up to speed to allow mobile working? What is the dress code? For example, are shorts allowed in summer time? Offering flexibility in how and when people work has been shown to boost employee engagement and is critical to meeting the needs of a diverse workforce. Are you looking at that?
  • Wellness – Healthier people perform better, cost less and cause fewer risks to the organisation. Physical health initiatives are already common place. The next wave is financial wellness. Some employers are looking to help employees manage their financials. A healthy employee with a mind free of financial stress is more engaged and more innovative.
  • Career progression – Lack of career progression opportunities is a key reason why some leave their jobs. Solely throwing pay at employees is not the answer, supporting career progression by being transparent about job opportunities, providing role models and mentoring is. To support diversity, you need to offer the right types of training alongside mentoring support, sometimes targeted at minority groups.

Traditional benefits – supporting and protecting the message

Traditional employee benefits can also impact the diversity and inclusion agenda:

  • Supporting and enabling the diversity agenda – Our benefit package can back up what we say. If we say we are a diverse employer, our benefit packages must be diverse too. Flexibility and choice is the natural ally of D&I, whether this is different levels of pension contributions, opt in/out insurance policies or buying or selling extra holidays.
  • Eroding the message – Good work on diversity and inclusion can be undone by benefits that do not align with diversity. If we only give employees leave when their child is born, but not when they adopt a child, what message does this send? Getting design wrong may turn our messages upside down.

What can you do about it?

We see two obvious steps to take:

  • Analyse and diagnose what you do today – Do your benefits, both intangible and traditional, support the diversity and inclusion agenda of the organisation? As well as a deep dive into the terms and conditions around your benefits, you may also need to analyse outcomes and how these look for different social groups.
  • Communicate and engage – Engaging employees on this is one way to show how important you see this topic. Communicate what you’ve found and get feedback on what employees themselves value. You may find low-cost options with high value to employees. Employee surveys can help, but simple direct engagement may be more valuable.

Not just buzzwords

Diversity and inclusion are not just new “buzzwords”. The workforce and customer base will continue to become even more diverse. Legislation, such as equal salary legislation, will force companies to ensure they are treating people fairly and equally. Getting your benefit packages right is one way to both enhance and support the diversity and inclusion agenda. Time to get on the dancefloor.


Adrian Jones
Director, People and Organisation
Tel: +41 58 792 4013

Sue Johnson
Senior Manager, People and Organisation
Tel. +41 58 792 90 98

PwC now officially licensed as a pension fund expert

Having the pension plan with the right balance of risk at a reasonable cost is crucial for both employees and employers. For many years our pension specialists have been working with our clients to deliver this ambition. Now PwC Switzerland has received official approval to act as a pension fund expert which means we can extend our support.

At the end of August 2017, the Supervisory Commission for Occupational Pensions (OAK BV/CHS PP) accredited PwC Switzerland to act as a pension fund expert for Swiss pension funds. This expands our own range of services and paves the way for continued growth in pension consulting in Switzerland.

Our retirement and pension consulting team is part of PwC’s People and Organisation practice. We have invested in our capabilities in this area in response to increasing client demand for retirement solutions: our team has grown as the issue has become more urgent. We now have actuaries, lawyers and economists with a broad range of expertise in various fields. In February 2017 Richard Köppel, an experienced SKPE (Swiss Chamber of Pension Fund Experts) pension fund expert.

In Switzerland, as in the rest of the world, our clients face the challenge of implementing, managing and delivering retirement and pension plans and the risks they bring. We have grown to match this challenge. PwC’s OAK licence is an important step.

New 1e pension legislation released – removal of minimum guarantee confirmed and rules around investment strategies clarified

The Swiss Federal Council has released the long-awaiting final wording of the new law that will govern 1e pension plans. 1e pension plans allow employees to choose their own investment strategy from a range of options. The plan can apply on earnings above CHF126’900 (4.5 times the maximum single AHV/AVS pension).

The new legislation applies from 1 October 2017. The main change is largely as expected – the Vested Benefit Act has been changed to exclude the need for a minimum guarantee at leaving. This change should mean that companies can account for these plans as defined contribution plans under IFRS/US GAAP, meaning no balance sheet liability, provided the plan meets the conditions for this.

The main changes in the ordinance

  • Plans can offer up to maximum 10 different investment strategies that apply to all of an employee’s savings. The limit is applied to a pension arrangement (“Vorsorgewerk”) rather than a provider.
  • At least one “low risk” investment strategy has to be offered. Low risk is broadly defined as cash and debt investments in Swiss francs with good credit-worthiness and an average duration below 5 years.
  • Remove the minimal benefit requirement of articles 15 and 17 of the Vested Benefit Act. For existing plans this requirement is removed once the plan offers a low risk strategy.
  • The definition of maximum savings in a 1e plan has been clarified.
  • Transition rules apply: if you already have a plan this has to comply with the new rules, in particular the new investment strategy offering by the end of 2019.

What now?

If you already have a 1e plan: you’ll need to review and possibly update the plan to meet the new rules. To be able to remove the minimal guarantee, the main barrier to defined contribution accounting under IFRS/US GAAP, one of the strategies you offer needs to meet the “low risk” definition. The plan design may need to be reviewed to ensure it complies with the maximum savings limits. Your plan will need to fully comply with the new rules by the end of 2019.

If you don’t yet have a 1e plan: the legislation is now clear and applies from 1 October 2017. So if your provider is ready, any project to implement a 1e plan should now have a clear path forward. How complex this will be depends on your own situation. Companies with corporate pension funds may find implementing a 1e plan with a separate provider more challenging due to the impact this has on their current fund. Given the timing, need for communication to employees and contractual implications, implementing a 1e plan by 1 January 2018 may be too soon. But starting as early as possible should mean you are on course for 2018.

More details

You can find more details on 1e plans through the following article. The full ordinance can be found here.

Pension rule changes may improve operating margins under US GAAP

March 2017

The US Financial Accounting Standards Board recently confirmed changes to post-employment benefit accounting rules. This could materially impact Swiss businesses reporting under US GAAP. The changes affect companies from 2019 at the latest, but early adoption is permitted if the change is made at the first interim period in a reporting year. This means that for companies with a 31 December year end a quarterly reporter must adopt the amendment at 31 March 2017 for the changes to be effective in 2017.

Under the new rules only the service cost, that part of the pension expense relating to benefits earned during the year, will be presented in operating income. Other components of the pension expense will now be reported outside of income from operations (previously included in operating income).

This means that for many businesses the pension cost reported under operating income will reduce, strengthening operating margins. Having fewer elements of the pension expense in operating income may also help reduce the volatility of reported margins.

The changes do not affect the timing of when costs are recognized or how they are measured. This amendment only impacts where the costs are reported.

Timing of changes

The amendment takes effect in 2018 for calendar-year public entities and in 2019 for calendar-year other entities. Early adoption is permitted. To adopt early the change must be reflected in the first interim period. Companies with a 31 December year end must therefore adopt the amendment by 31 March 2017 for the changes to be effective in 2017.

Next steps

Companies should consider the impact these changes will have on systems and processes, as well as evaluate the impact on gross and operating margins. Companies then need to decide when to adopt the changes.

Contact us if you have any questions or are affected by this. More information about the changes made is available in the linked PDF, which was prepared by PwC US.

You can find more information here.


Chris Rutherford
People and Organisation
Tel. +41 58 792 15 34

Adrian Jones
Director, People and Organisation
Tel: +41 58 792 4013

Swiss pensions – hot topics for employers in 2017 and beyond

2017 will offer up further challenges and questions for companies on their Swiss pension plans. We highlight five of the key discussion points:

  1. Valuing pensioner obligations

Reported funding levels remain at what appear to be good levels. But this doesn’t tell the full story. One key driver of funding levels is the technical interest rate used to value pensioner obligations. This rate is chosen by the fund board and not linked to market conditions.

Falls in long-term bond yields imply that future long-term returns available to funds are lower now than they were in the past. Funds need to consider updating their interest rate to reflect this. If they don’t go far enough, the value of obligations will be understated.

  1. Falling bond yields have driven up bond asset values – beware the mismatch

Despite a rebound in the last quarter, the fall in bond yields over 2016 means that some asset classes rose in value, especially bond and fixed interest assets, which increased by around 5%. At lower interest rates, property rental income streams have a higher valuation and cheaper mortgages inflate valuations.

Some funds will be tempted to reward members for this “positive” news with giving higher interest on their accounts. The mismatch between how assets are valued (based on market principles) and obligations (based on selected assumptions) means that the true picture of a pension fund is not obvious on the surface. Decisions need care as a result.

pwc_issues for 2017

  1. Growing interest in real estate assets needs caution

2016 saw continued interest in property as an asset class for pension funds. There are many good reasons for Swiss funds to invest in real estate. They offer stable income and are illiquid long-term assets. This can suit long-term investors like pension funds.

Property should have a role to play in any diversified asset portfolio. But history shows that economic shocks hitting the property market can come at any time. A friend once told me “Swiss property prices never go down” – such statements raise alarm bells as people tend to forget the real estate crisis in Switzerland in the early 1990s! Pension funds need to be watchful.

  1. 1e pension plans – new law brings opportunity for employees and sponsors

So-called 1e pension plans allow individuals to choose their own investment strategy for their savings on earnings above CHF127K. A new law governing these plans is expected to come out in the first half of this year.

The law will remove risks for employers. As past rights can transfer, this could mean lower balance sheet liabilities for IFRS and US GAAP reporters as defined contribution accounting should be possible. 1e gives employees the opportunity to fit their savings strategy to their own needs – whether that is a conservative and balanced portfolio like current funds or something more aggressive.

  1. New focus IFRS reporting for pensions

The risk-sharing nature of Swiss plans does not fit well within IFRS today. Some of the benefits of plans are linked to fund performance (e.g. interest credited and retirement conversions) so risk is shared between employer and employees.

2017 should see the introduction of new ways to address this challenge. These options will give companies the opportunity to better reflect the nature of their plans in the financial position. This will lead to some fundamental questions for companies: What will happen if there is underfunding? Will employees be asked to contribute? How will we manage changes to benefits?

Like its predecessors, 2017 promises to be another challenging year in Swiss pensions.

Download here the PDF version.

Moving with the times – Will 1e pension plans change the face of Swiss pensions?

The new changes to 1e pension plans offer opportunities for both employees and employers.

In a PwC survey of 96 employers and pension funds, only 8% of surveybusinesses said they offered a 1e pension plan to their higher earning employees today. While 22% of survey participants said they did not want to offer a 1e plan, the majority are still undecided.

The law will change in 2017 making 1e plans more attractive for employers by removing the guarantee on exit which exists now. This was one of the big barriers to 1e plans in the past, so the change is likely to open the opportunity for employers and employees alike.

So how will this change affect pension funds, employers and employees? And what does the pension reform mean?

This booklet will explain the changes in the law and outline the new opportunities it will bring for both employees and employers.


 You can find the full survey here.


If you would like to know more about 1e pension plans and how to implement them or about our survey, please contact Adrian Jones or Roger Ehrensberger.



Global pension risk – How do Swiss multinationals compare to their peers

Bild_Pension_BlogLower long-term interest rates look here to stay. People are living longer. Finding positive real investment returns with an acceptable level of risk is getting tougher. All of these factors are putting pressure on the costs of retirement.

Our 2014 survey of corporate attitudes about global retirement provision showed the global trend towards defined contribution pension plans which place the risk of financing retirement on employees. While this trend continues, the legacy of past promises made by corporates remains.

Our analysis of the latest financial disclosures of 587 companies across Europe shows the continuing and growing impact retirement obligations have on balance sheets and corporate results. Our study looked at companies with market capitalisations over €1bn, including 71 Swiss corporates. This showed that:

  • The 71 Swiss multinationals in our analysis had total defined benefit obligations of €204bn.
  • These obligations were on average 16% of market capitalisation (value of shares in circulation).
  • Assets to cover 85% of these obligations, a fall of 5% compared to 2013/14.
  • Annual payments by Swiss companies to defined benefit plans were of 2.4% of the obligations (i.e. €4.9bn), equivalent to 0.3% of shareholder value a year.

You can find our full analysis here.

Solving these challenges needs a clear global strategy combined with local actions and plans to execute risk reduction. Our 2014 survey outlines some of the options and approaches available to multinationals:


Swiss pension plans are changing – your views

Swiss “1e” pension plans allow individuals to choose their own savings investments from a pool of pre-defined investment choices for contributions paid on earnings above CHF 126’900 a year. These plans face change in 2016. These changes are likely to make these plans more attractive to employers and result in changes to current employer pension funds. You can find more details in the overview below.

If you represent an employer or pension fund, whether that is in fund management, HR or finance, we’d like to hear your views on these plans. This will help you and our other corporate and pension fund clients and contacts make decisions about them. The short survey is currently available in English and German and should take around 5 minutes to complete.

English: 1e pension plan survey

Deutsch: Umfrage über 1e Vorsorgepläne

Please note:

  • The survey will only ask questions based on your knowledge today.
  • Some pages are skipped depending on the answers you give.
  • The survey is anonymous, but by including your email address at the end we can ensure you get the results as soon as they are available.

An overview of the changes