Definitions and explanations of terms used in regards to pension fund and supplementary insurance
The employee benefits institutions of Hitachi Energy Switzerland Ltd offer their members a choice between three contribution tables: Standard, Standard plus and Standard minus.
· Under the Standard plus contribution table, members voluntarily pay higher monthly contributions to the Pension Fund to increase their savings capital, and hence their retirement pension.
· In life situations where members can only pay lower contributions, or wish to pay lower contributions, they can choose the Standard minus contribution table. However, lower contributions also mean lower retirement benefits. Such shortfalls can be compensated through a subsequent change to the Standard plus table.
Risk insurance for the events of death and disability are the same in each contribution table. Irrespective of the members’ choice, the employer always pays its contributions according to the Standard table. Members may change to a different contribution table as at the beginning of each year. Where members do not choose a specific table, they will automatically pay contributions according to the Standard table.
The coverage ratio indicates the ratio between a pension fund’s payable benefits and its current assets. When a pension fund has sufficient assets to simultaneously disburse the paid-in pension contributions to all of its members, or to meet all of its obligations, the coverage ratio amounts to 100%. If the coverage ratio exceeds 100%, reserves arise which are referred to as ‘value fluctuation reserve’. For instance, a coverage ratio of 105% entails a value fluctuation reserve of 5%. If the coverage ratio is below 100%, there is a funding shortfall.
Members can pay voluntary deposits (buy-ins) into the Pension Fund to increase their retirement benefits. This will compensate for any pension shortfalls that result, for instance, from interruptions in employment or wage increases. At the same time, members thus reduce their tax payments since voluntary buy-ins can be deducted from income on the tax return. The insurance certificate specifies the provisional allowable buy-in amount. On request, the Pension Fund will calculate the exact maximum buy-in amount.
According to the tax authority, once a buy-in has been made, members may not withdraw any capital in the following three years, not even from the savings capital that was available before the buy-in. According to pension law, savings capital from the time before the buy-in can be withdrawn even during the three-year waiting period. However, it is likely that the tax authorities will not accept the capital payment. In any case, members are responsible for clarifying and bearing the fiscal consequences of their buy-ins and any withdrawals of capital.
At the Hitachi Group Supplementary Insurance Plan, the entire savings capital is paid out as a lump sum upon retirement. According to the law, buy-ins made within three years before retirement may not be withdrawn as a lump sum. Buy-ins are thus only possible until the age of 62. Where members take early retirement and have made buy-ins within the last three years prior to early retirement, the vested benefit will be transferred to a vested benefit account or vested benefit policy up to a maximum of these buy-ins.
Members leaving the company are entitled to a vested benefit which is equal to the savings capital accrued at the time of the departure. The vested benefit will be transferred to the employee benefits institution of the new employer or, if there is no new employer yet, to a vested benefit account or a vested benefit policy. Cash withdrawals are only possible in certain cases, for instance in the case of self-employment.
A personal retirement account is opened for each member that shows the status of their savings capital. The savings capital consists of the deposits (vested benefit, voluntary buy-ins) minus withdrawals (for instance advance withdrawals under the promotion of home ownership scheme) and the savings credits (monthly employer and employee contributions). The capital is subject to the interest rate set by the Board of Trustees on an annual basis.
The actuarial interest rate is a mathematical variable which is used to calculate the future interest on pensions over their entire term. The level of the interest rate depends on the expected development of the financial markets. Until the end of each commitment, the employee benefits institution is thus required to generate a return that is at least as high as the specified actuarial interest rate. As far as possible, its level should therefore be determined such that the effective return on assets covers the rate in the long term. Only then can the actuarial interest rate be maintained as a guarantee over a longer period of time.
The Pension Fund uses the conversion rate to convert the members’ savings capital at the time of retirement into a lifelong annual pension. Among other factors, the conversion rate is based on the average life expectancy. The determination of the conversion rate is thus closely connected with the life expectancy of the respective generation of pensioners. Current pensions are not affected by any change in the conversion rate.
The insurance certificate, which provides information about the members’ personal insurance situation in the 2nd pillar, is sent out each spring, or handed out on request.
The Board of Trustees of the Pension Fund Hitachi Energy Switzerland Ltd determines its interest rate on savings capitals on an annual basis. The interest is credited to the members’ personal savings capitals. The rate depends on the current and expected income on the financial markets, as well as the Pension Fund’s financial position.
If the coverage ratio exceeds 100%, reserves arise which are referred to as ‘value fluctuation reserve’. Among other reasons, the value fluctuation reserve is formed to absorb any price fluctuations that may affect the investments. The aim is to prevent the employee benefits institutions from becoming underfunded due to short-term movements on the financial markets. Pension funds are required by law to form a value fluctuation reserve. They determine the required percentage (target value fluctuation reserve) in accordance with their risk profile.
Members may use their savings capital to acquire residential property until three years before reaching the statutory retirement age as set out in the Rules. The minimum withdrawal is CHF 20,000. Up to age 50, members may withdraw their entire savings capital; thereafter, they may withdraw the sum available at age 50 or half of their accrued savings capital.