When is it advisable to give up the company pension fund?

The trend away from company pension funds towards collective and joint schemes (CJS) shows no sign of abating. But what are CJS and why are they so attractive as a solution for company pension funds? There are many reasons for this. What is important to know, however, is the difference between the C and the J in CJS.

• Collective foundations, such as GEMINI, are autonomous or semi-autonomous foundations that offer investment opportunities at the level of the individual employee benefits unit (for each affiliated company).

• Joint schemes are also either autonomous or semi-autonomous, but invest the assets at the level of the employee benefits institution (all affiliated companies together).

In principle, most CJS can respond to complex client needs through their pension plan design. This means that they offer flexible risk benefits, savings plan options, financing options and more. The main drivers of the development away from company pension funds and towards CJS include the following:

• Lower costs (virtually no costs for pension fund experts, auditing, supervisory fees, legal advice, legal compliance, etc., as these are shared by all affiliated companies)

• Responsibility (the foundation board is jointly and severally liable, including their private assets)

• More stringent implementation requirements (increasingly complex rules)

• Modern IT platform (online portals for employers and members, high level of security)

• Leveraging economies of scale

• Training and professional development within the militia system

• Increasingly complex investment environment

• Different structures of company pension funds (claims history, ageing, ratio of active members to pensioners, technical parameters, etc.)

There is no easy answer to the question when it makes sense to give up an autonomous pension fund, and there are also emotional aspects to consider. In many cases, these pension funds were founded by the predecessors of today’s ‘bosses’ and there is a traditional bond between the company, its employees and its pensioners.

Younger managers or foreign executives of international companies may no longer have this special bond and may prefer to simplify their employee benefits scheme or join a CJS. In this case, they will have to look for a suitable CJS partner and start planning the liquidation of their company pension fund.