The Federal Constitution (Art. 111) and the Federal Act on Occupational Old-Age, Survivors’ and Invalidity Pension Provision (BVG/LPP, Art. 1) stipulate that the 2nd pillar, together with the AHV/AVS and IV/AI, must guarantee at least 60 % of the last salary on retirement, or on the occurrence of events such as disability or death.
However, the threshold set by law does not always reflect the reality of individual needs; this is referred to as “pension gaps”. To close these income gaps (pension gaps) and offer greater financial security, companies can set up supplementary, extra-mandatory plans for their employees.

Setting up occupational pension provision in a company

The law requires all employees to be compulsorily insured under the BVG/LPP. A company may join one or more pension institutions, depending on the structure of its workforce and on the structure it wishes to give its occupational pension provision.

Numerous 2nd pillar pension institutions are active on the market. The choice of the pension institution to join and the level of benefits insured under the pension plans are normally entrusted to the Pension Committee (PC). The PC is made up of representatives of the employer and representatives of the employees. Under this joint representation model, the two interest groups – each made up of at least one person – select the occupational pension partner and the insurance levels for each category of staff (e.g. categories: employees, middle managers, senior managers).

Mandatory vs extra-mandatory occupational pensions

Mandatory occupational pension provision applies conversion rates, salary thresholds and minimum, universal benefits laid down by law, guaranteeing uniformity for all insured persons.

Extra-mandatory occupational pension provision, on the other hand, allows extra-mandatory and supplementary plans to be set up, which make it possible to:

• define higher savings contribution rates, closing pension gaps;
• tailor cover for biometric risks (old age, death, disability);
• freely choose the form of benefit (pension, lump sum, or a combination);
• optimise taxation for both the employee and the company.

The decision to offer extra-mandatory plans to employees is at the company’s discretion (in discussion with the pension committee). Given their supplementary nature and the way they improve pension conditions, these plans are therefore a benefit for staff.
A company can offer extra-mandatory pension provision to its staff, including all employees subject to the BVG/LPP or only a restricted group (in compliance with the legal provisions on the collective principle).

Supplementary plans for executives and senior managers – extra-mandatory pension provision

The strategic importance of supplementary pension provision

Occupational pension provision is one of the key criteria that make a job attractive. While it is possible to differentiate between categories of employees within the company, assigning each a dedicated pension plan, it is also possible to subject everyone, or restricted groups of insured persons, to supplementary occupational pension plans. It is common practice to reserve these forms of pension provision for categories of employees in management positions (to distinguish them, we refer to these forms as “supplementary pension provision” and to the others as “basic pension provision”).

Costs and operational flexibility

Supplementary pension provision is characterised by lower costs than basic pension provision and can easily be applied to any company. It also offers great flexibility both in defining the insured benefits and in selecting the categories of staff to be covered.

Modular insurance cover

A first important element of flexibility relates to insurance cover. In “supplementary pension provision”, biometric risks (longevity, death, disability) can be included, tailored or excluded from the contract depending on the objectives. For example, a supplementary plan may contain only disability benefits, or insure only savings and death benefits. The financial level of such cover is not tied to the BVG/LPP minimum parameters, with far greater scope for customisation than basic pension provision.

How benefits are paid out

Supplementary pension provision allows the form in which benefits are paid out to be chosen freely. For example, it is possible to provide for all insurance benefits to be paid only as a lump sum (retirement capital, death capital, disability capital), effectively excluding a pension. There are objective advantages to this approach. A supplementary plan also helps to stagger the years in which one’s retirement capital is drawn, which is beneficial for tax and planning purposes.

Investment management and asset allocation

Unlike basic plans, where capital flows into a collective pool that follows a single investment strategy decided by the pension institution, supplementary plans provide access to various asset allocations offered by the same institution or, for higher salaries, to the so-called 1e plans provided for by Art. 1e BVG/LPP, described in more detail in the following section.

1e plans: autonomy and competitive advantages

1e plans are intended for employees with salaries above CHF 136’080.- (2025) and give the insured person a high degree of autonomy in choosing the investment strategy for their pension capital. These instruments offer a wide range of investment strategies with direct participation in the capital markets.
1e plans have numerous strengths:

• opportunities for capital returns;
• free choice of investment strategy;
• extremely low costs for the company and the employee;
• savings contribution rates that can be chosen and are potentially very high;
• no redistribution of profits within the collective of insured persons;
• diversification of one’s pension provision;
• tax optimisation;
• no risk of underfunding (for the company);
• retention of key people and senior managers;

The features that characterise supplementary plans make them particularly suitable for staff in executive and senior management positions and for employees with high salaries.

Conclusions

Occupational pension provision offers a multitude of opportunities. Advisers’ knowledge of the subject and specialist analysis make it possible to shape tailor-made solutions, maximising the benefits for both the company and its staff.

Supplementary plans are tools for harmonising pension provision, for planning, for tax optimisation and for staff retention (…), and they can secure a successful strategic position for a company in the competition for talent on the labour market.

Personalised advice

Let Assidu and its occupational pension specialists guide you through this market; together we will examine your wishes and objectives. Pension provision is a very long-term relationship, and our philosophy is built on long-lasting relationships with our clients, so it is only natural for us to accompany you over the years, guiding you in your choices and sharing your experiences.

Article written by:

Maurizio Reichlin

Insurance Expert with Federal Diploma
Assidu Individual Life contact person for Ticino