Full insurance under pressure: partially autonomous collective foundations as a possible alternative for SMEs

Column by Alain Grand

For decades, full insurance has been the standard solution for many small and medium-sized enterprises (SMEs) in Switzerland when it comes to occupational pension provision. Guaranteed benefits, maximum protection against market risks, and administration fully handled by the insurer – these arguments were convincing for a long time. But conditions have changed: rising life expectancy and an increasingly strict regulatory framework make it difficult for life insurers to generate the returns required to finance their guarantees. Many providers are responding by increasing risk premiums or applying stricter selection criteria when admitting new companies.

In the picture: Alain Grand, Specialist manager in Pension solutions at Tellco

Security comes at a price

Anyone taking out full insurance fully outsources investment risk. The insurer must invest retirement assets conservatively and build the corresponding capital reserves. This reduces volatility, but results in a low equity allocation and therefore limits return potential. At the same time, premiums rise because the insurer must tie up risk-weighted equity capital to guarantee benefits. Companies with older staff or a higher risk profile feel this particularly strongly: they pay higher premiums while benefits remain the same. In addition, fewer and fewer insurers accept such schemes or exclude entire sectors altogether.

The market responds with selection

The environment forces many full insurers to apply stricter risk selection. New affiliations are increasingly refused or offered only at high cost; some providers are even withdrawing entirely from this market. Companies with complex structures – for example irregular working hours, high staff turnover, or many older employees – are particularly disadvantaged. For them, full insurance is now more expensive and less easily accessible. There is no right to be admitted.

Collective foundations: flexibility and responsibility

Partially autonomous collective foundations are organised differently. They invest the pension assets themselves, while disability and death risks are reinsured with an insurance company. Thanks to the free choice of investment strategy, they can diversify broadly across asset classes and seize opportunities in the financial markets. In good years, insured members benefit from higher interest crediting; in bad years, the company shares the investment risk jointly with the insured. A solid funding base and professional risk management are therefore key, with the ratio between active insured members and pensioners being particularly important: a low proportion of pensioners is a sign of a robust structure.

What companies should pay attention to when choosing

When comparing models, SMEs should focus less on buzzwords and short-term returns, and more on long-term stability. Key criteria include:

• Insured population structure: the ratio of active insured members to pensioners is a key indicator of stability. Many active contributors and few retirees mean greater risk capacity.

• Costs and risk premiums: in full insurance, risk premiums rise because the insurer must tie up more capital for guarantees. Collective foundations are often more transparent in terms of costs, but require companies to bear fluctuations in the value of the pension fund’s assets.

• Benefit level: retirement, disability and death benefits must meet the needs of the workforce. The crediting model as well as any restructuring contributions must also be clearly defined.

• Funding ratio and financing: a high funding ratio and sufficient value fluctuation reserves show that a pension fund is able to withstand crises.

What does this mean for companies? 

Full insurance remains an attractive solution for companies with a very low risk budget and a strong need for guarantees. At the same time, under today’s conditions it is becoming more demanding: costs are rising, the framework conditions are becoming more restrictive, and the admission of new schemes is increasingly selective in many cases.

For many SMEs, it therefore makes sense to systematically include partially autonomous collective foundations in the evaluation. They offer an occupational pension solution with greater flexibility – especially for companies with frequent staff changes, part-time models, or highly fluctuating salaries.

Ultimately, it is not the label that matters, but whether the solution fits the company: costs, benefits, stability and workforce structure must be aligned so that the solution remains sound and suitable in the long term.