Pension fund comparisons, such as the annual pension fund rating, can be a valuable tool in the search for the perfect employee benefits solution. However, since different foundation models have very different characteristics, the various collective foundations cannot be directly compared with each other.

Comparison of key figures makes sense where the respective collective foundations employ a single investment vehicle and a uniform coverage ratio. According to this model, all companies and their employees jointly share the investment risk, and the retirement assets earn the same interest.

However, these institutions are not easily comparable to collective foundations where each affiliated pension fund can choose its own investment strategy and coverage ratio. This is why comparisons without the relevant knowledge are of little value.

All companies lumped together

Principally, semi-autonomous collective foundations can offer two different investment models, i.e. a pooled investment scheme or an individual investment scheme. In the case of the pooled investment scheme, the foundation board defines the investment strategy for all affiliated companies. The majority of collective foundations follow this classic model, under which a portion of the generated return is transferred to the collective reserves until the foundation’s coverage ratio reaches a predefined target value.

However, there is a downside. If a company terminates the affiliation agreement, surplus funds are usually not passed on. Moreover, on departure or retirement, members do not participate to the same extent in the gains generated by the foundation’s assets.

Taking individual requirements into account

In the case of collective foundations offering individual investment schemes, on the other hand, each affiliated company decides on the investment risk it is willing to take on the basis of its risk profile. Risk capacity depends on the coverage ratio chosen by the employee benefits unit, as well as on the composition of the member portfolio and the available reserves. Each affiliated company has its own coverage ratio, interest rate policy and annual accounts. In some cases, companies even adopt their own conversion rates and technical interest rate.

On top of this, each company’s pension fund committee may design its own pension plan which defines the benefits and contributions for the occupational benefit scheme. The foundation board merely ensures conformance with the law and approves the entry into force.

This individual approach has the advantage of preventing cross-subsidisation and dilution between companies. Affiliated companies terminating their affiliation agreement will take any surplus funds with them. Conversely, the members’ assets on departure will be reduced accordingly in the event of underfunding.

Pension fund comparisons, such as the annual pension fund rating, do not take account of the differences between the foundation models. Although analysing the key figures is crucial when joining a collective foundation, it is just as important to know which foundation model applies.

Maintaining flexibility – and the collective features

Taking an individual approach not only increases flexibility in the design of the investment strategy or the pension plan, it also allows for greater consideration of a company’s other individual requirements. Greater flexibility generally means more leeway, for instance when it comes to providing for dependents or early retirement. Whether cohabitation should be placed on an equal footing with marriage, or whether retirement assets should be transferred to the foundation in the event of death, are questions that each company answers for itself.

Companies can also contribute their portfolio to the collective foundation along with their current asset manager. Transferring own real estate into a collective foundation with an individual approach, for instance, is much easier than into a collective foundation with a pool approach.

At the same time, foundations that have adopted the individual approach do not have to compromise on the advantages offered by classic collective foundations. Their operating costs are lower than those of a separate foundation – regardless of the type of collective foundation. When several companies are affiliated with a collective foundation, it pays off to run a sophisticated benefits service or case management, for example. The costs of digital solutions, such as employer portals or members’ apps, can be shared more easily among several companies. Last but not least, the individual approach also pays off on the bottom line: with each new affiliation agreement concluded with the collective foundation, the expenditure per member goes down.