Interview with Thomas Gerber, head of pensions at AXA Switzerland: Switching from full insurance to the partially autonomous world

In the field of occupational pensions, AXA now offers partly autonomous insurance solutions, thereby replacing full insurance. Findea spoke with Thomas Gerber, Head of Pensions at AXA Switzerland, to explain the advantages and disadvantages of the new model for young entrepreneurs.

AXA is switching from full insurance to partly autonomous BVG solutions. Why was this step decided upon?

‍The cost-performance ratio in full insurance has become increasingly disadvantageous over the last few years. Due to low interest rates, only a low return is possible, and stringent regulatory requirements restrict the scope of action in investment strategy in full insurance. Although full insurance always offers a 100% guarantee, the price for this is a decreasing interest rate on retirement assets, decreasing pensions, and higher costs for employers and employees. Customers are paying an increasingly higher price for less performance.

As the largest SME insurer in Switzerland, we want to change this and take responsibility for a stable second pillar. That's why we have developed a new, future-oriented offering for our customers, which allows a good cost-performance ratio again and is also sustainable.

‍What is the difference between full insurance and partly autonomous solutions?

‍Partly autonomous pension funds are freer in their investment strategies and thus have better opportunities to seize return opportunities for the insured. This benefits the customers and insured. They can anticipate a higher interest rate on retirement assets and thus higher pensions – all at a more favorable price. Our customers will pay an average of 30 percent lower risk premiums with the new solution starting from 2019.

‍However, the switch from full insurance to partly autonomous BVG solutions might have worried some young entrepreneurs. Is the new AXA BVG solution also recommended for newcomers?

‍Yes, the partly autonomous solution is also a good choice for start-ups. In the second pillar, a gap has been opening for years: On one hand, people are living longer, leading to longer pension commitments. On the other hand, the low-interest environment reduces the earnings needed to finance these pension benefits. To bridge this gap, money is continually redistributed from younger contributors to pensioners. This redistribution from younger to older generations has increased significantly in recent years in full insurance – at AXA alone, it amounted to more than 3.4 billion Swiss Francs between 2012 and 2017. That's more than 1500 Swiss Francs per year that the working population misses out on their retirement assets.

With the new partly autonomous solution, this redistribution can be significantly reduced. The switch pays off for all our clients, but especially for those who predominantly employ younger staff, as is often the case with start-ups. They pay significantly lower risk premiums through the switch, thus saving each year on employer and employee contributions for the pension fund, while at the same time having the prospect of higher pensions in old age.

‍What are the disadvantages of this solution?

In full insurance, the retirement assets were covered 100% at all times. The risk for the clients and their insured that the pension fund might fall below coverage was thus zero. That is no longer the case with the partly autonomous solution. The risk of long-term undercoverage, which would necessitate remedial measures, is low with solid management of the foundation and professional investment management, while the potential for higher interest and a stabilization of retirement provision significantly improves. Customers and insured benefit more in the long term if their retirement assets are sufficiently interest-bearing and the conversion rate can be kept stable. In retirement, thanks to compound interest, this can mean up to 20 percent higher pensions.

‍How secure is the new BVG solution from AXA?

‍The decisive factor is the coverage ratio of a pension fund. If this stands at 100%, it means that the pension fund can fulfill 100% of its pension obligations. If the coverage ratio is above 100%, it means that the pension fund has reserves. To enable the new AXA foundations to start in partial autonomy with a solid buffer, AXA transfers additional funds totaling 3.5 billion Swiss Francs to them, enabling a more than solid coverage ratio of 111%. The solid financial equipment allows the foundations to balance market fluctuations over time and thus largely minimize the risk of undercoverage. Furthermore, all existing elderly pensioners remain with AXA, so the foundations can start without ongoing pension obligations. This is a great advantage and increases the risk capacity of the foundations additionally. Thus, the new solution continues to offer very high security.

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