Regulations on technical rules and on the use of surpluses

Transcription

1 Regulations on technical rules and on the use of surpluses valid from 1 January 2018 pensionskasse Tellco Pensinvest pro Bahnhofstrasse 4 Postfach CH-6431 Schwyz t pkpro@tellco.ch pensinvest@tellco.ch pkpro.ch tellco.ch

2 Table of contents A Technical rules B Use of surpluses 1 Purpose 3 2 Definitions and principles 3 Pension provider level 3 Applicable technical provisions Longevity reserve Provision pursuant to Article 15 or Article 17 3 of the VBA 3.3 Provision for conversion rate adjustments Provision for pension benefits covered by non- 3 proportional reinsurance or financing 3.5 Provision for fluctuations in the death risk 4 of pensioners 4 Non-applicable technical provisions Risk fluctuations (death and disability) 4 for active insured persons 4.2 Pending and latent claims Reduction of technical interest rate Pension increases 4 8 Surplus income / expenses prior to creation 5 of 8.1 Use of surplus income prior to creation of Surplus expenses prior to release of 5 9 Use of s and non-committed 6 funds Of pension providers 9.1 Use of s of pension providers Use of non-committed funds of pension providers 6 10 Calculations of coverage ratio Pension providers coverage ratio Foundation s coverage ratio 6 (without pension providers) 10.3 Foundation s coverage ratio (with pension providers) 6 11 Participation in surpluses from insurance contracts 6 12 Entry into force 6 Foundation level 5 Applicable technical provisions Longevity reserve Provision for fluctuations in the death risk 4 of pensioners 6 Non-applicable technical provisions Risk fluctuations (death and disability) 5 for active insured persons 6.2 Pending and latent claims Reduction of technical interest rate Pension increases Provision for conversion rate adjustments Provision pursuant to Article 17 of the VBA Provision for pension benefits covered by non- 5 proportional reinsurance or financing 7 Fluctuation reserve Definition Target amount 5 TPI_09_220_06_e 6 2

3 Based on Article 6 of the Articles of Foundation of Tellco Pensinvest and Article 48e of the Swiss Occupational Pension Ordinance (hereinafter referred to as the «OPO 2» Verordnung über die berufliche Alters-, Hinterlassenen- und Invalidenvorsorge, BVV 2), the Board of Trustees issues the following regulations: A Technical rules 1 Purpose These regulations govern the creation of technical provisions and of s as well as the use of surplus income and surplus expenses. The purpose of these regulations is to secure the retirement savings and current pensions over the long term, taking into account Standard 26 of the Swiss Accounting and Reporting Recommendations (Swiss GAAP FER 26) and Guideline 2 of the Swiss Chamber of Pension Fund Actuaries. 2 Definitions and principles In order to secure commitments by the pension fund, pension capital and provisions are calculated based on actuarial assumptions and recognised on the liabilities side of the balance sheet. Pension capital is the sum of the individual entitlements of active insured persons and pensioners. The pension providers decide whether retirement, survivors and disability pensions will be funded at the level of the pension provider or at the Foundation level. Depending on its decision, the pension capital of pensioners and the retirement savings of disability pensioners will be recognised either at the level of the pension provider (on the basis of the pension provider s technical assumptions) or at the level of the Foundation (on the basis of the pensioner pool s technical assumptions). The actuarial calculations are based on: a) the technical interest rate proposed by the pension fund commission and determined by the Board of Trustees; b) the actuarial tables proposed by the pension fund commission and determined by the Board of Trustees; c) a collective computation. The Board of Trustees decides the technical interest rate and the actuarial tables for the pensioner pool. Pension capital is calculated using statistical methods, without considering future changes in insured income or current pensions. Technical provisions are calculated using accepted principles in accordance with actuarial specifications set by the pension actuary. The principle of consistency is to be adhered to when technical provisions are created or released. The is created for the market-specific risks associated with the assets in order to support the sustained fulfilment of promised benefits. This reserve is not included under the pension capital required by insurance principles in the calculation of the coverage ratio in accordance with Article 44 of the OPO 2. Pension provider level 3 Applicable technical provisions Technical provisions are created as follows: 3.1 Longevity reserve Longevity reserve is the estimated capital required to cover the rising costs associated with current and future pensions due to increased life expectancy. The longevity reserve is calculated as a percentage of the capital required as cover for life annuities. It is 0.5% in 2016 and increases by 0.5% each year. This reserve is calculated by the pension fund actuary and reported in the balance sheet item «Pension capital pensioners». 3.2 Provision pursuant to Article 15 or Article 17 of the VBA If the calculation in line with Article 15 or Article 17 of the Swiss Vested Benefits Act (Freizügigkeitsgesetz, FZG hereinafter referred to as the «VBA») produces an amount that is higher than the accrued individual savings capital, a provision is created for the difference at the reporting date. 3.3 Provision for conversion rate adjustments A provision is needed for conversion rate adjustments, depending on the pension plan and the technical assumptions and technical interest rate that were used or the selected reinsurance solution. The calculation is made by the accredited pension actuary. The provision is created for all insured persons and disability pensioners who are due to take normal retirement in the next seven years. The calculation is made based on the projected retirement assets on the reporting date, whereby any lump-sum withdrawals reported to the Foundation may be taken into account. 3.4 Provision for pension benefits covered by nonproportional reinsurance or financing These include provisions for risks for pension benefits that are not subject to reinsurance or are subject to non-proportional reinsurance under collective insurance contracts, or provisions for pension benefits which are not adequately financed by individual contributions on the basis of the equivalence principle. The regulations of Article 44 of the OPO 2 govern the determination of the coverage ratio and the calculation of any underfunding. 3

4 3.5 Provision for fluctuations in the death risk of pensioners In the case of relatively small pensioner portfolios, life expectancy of pensioners normally varies from the statistical average life expectancy as a result of insufficient risk equalisation and the impossibility to apply the law of large numbers at the moment. The purpose of the provision is to equalise risk fluctuations in the case of pensioner deaths. The provision for risk fluctuations is determined using the following formula: Provision factor = 0.5 x 1 / n 0.5 where n equals the number of pensioners. The child s pensions and the bridging pensions provided under old-age and survivors insurance (hereinafter referred to as the «OASI» Alters- und Hinterlassenenversicherung, AHV) are not included for the purposes of ascertaining the number of pensioners. This is because child s pensions are calculated on the basis of actuarial principles and OASI bridging pensions are fixed-term annuities that continue until the recipient reaches the OASI retirement age and thus do not pose any further longevity risk. The provision factor calculated in this manner will not exceed 10%. The provision is calculated by multiplying the provision factor by the pension capital of pensioners. The pension capital of the child s pensions and the OASI bridging pensions are not taken into account in the calculation. 4 Non-applicable technical provisions The Board of Trustees has not created the technical provisions listed below for the following reasons: 4.1 Risk fluctuations (death and disability) for active insured persons Benefits for death and disability are reinsured. Inflation adjustments are not reinsured. 4.2 Pending and latent claims Benefits for death and disability are reinsured. Inflation adjustments are not reinsured. 4.3 Reduction of technical interest rate A reduction of the technical interest rate is currently neither mandatory nor has it been agreed by the Board of Trustees. 4.4 Pension increases Current disability and survivors benefits are generally covered on a comprehensive basis. For individual cases, where due to a statutory obligation an OPA minimum pension has to be adjusted for inflation, no provision is created. Moreover, there are no obligations under the plan or obligations defined by the Board of Trustees for inflation adjustments that would necessitate the creation of a provision. Foundation level 5 Applicable technical provisions Technical provisions are set up as follows: 5.1 Longevity reserve Longevity reserve is the estimated capital required to cover the rising costs associated with current and future pensions due to increased life expectancy. The longevity reserve is calculated as a percentage of the capital required as cover for life annuities. It is 0.5% in 2016 and increases by 0.5% each year. This reserve is calculated by the pension fund actuary and reported in the balance sheet item «Pension capital pensioners». 5.2 Provision for fluctuations in the death risk of pensioners In the case of relatively small pensioner portfolios, life expectancy of pensioners normally varies from the statistical average life expectancy as a result of insufficient risk equalisation and the impossibility to apply the law of large numbers at the moment. The purpose of the provision is to equalise risk fluctuations in the case of pensioner deaths. The provision for risk fluctuations is determined using the following formula: Provision factor = 0.5 x 1 / n 0.5 where n equals the number of pensioners. The child s pensions and the bridging pensions provided under the OASI are not included for the purposes of ascertaining the number of pensioners. This is because child s pensions are calculated on the basis of actuarial principles and OASI bridging pensions are fixed-term annuities that continue until the recipient reaches the OASI retirement age and thus do not pose any further longevity risk. The provision factor calculated in this manner will not exceed 10%. The provision is calculated by multiplying the provision factor by the pension capital of pensioners. The pension capital of the child s pensions and the OASI bridging pensions are not taken into account in the calculation. 4

5 6 Non-applicable technical provisions The Foundation has no active insured persons. For this reason, the Foundation has not created the technical provisions listed below. 6.1 Risk fluctuations (death and disability) for active insured persons There are no active insured persons at the Foundation level. 6.2 Pending and latent claims There are no active insured persons at the Foundation level. 6.3 Reduction of the technical interest rate A reduction of the technical interest rate is currently neither mandatory nor has it been agreed by the Board of Trustees. 6.4 Pension increases Current disability and survivors benefits are generally covered on a comprehensive basis. For individual cases, where due to a statutory obligation an OPA minimum pension has to be adjusted for inflation, no provision is created. Moreover, there are no obligations under the plan or obligations defined by the Board of Trustees for inflation adjustments that would necessitate the creation of a provision. 6.5 Provision for conversion rate adjustments There are no retirement losses at the Foundation level. 6.6 Provisions pursuant to Article 17 of the VBA The Foundation has no pension capital of active insured persons. 6.7 Provision for pension benefits covered by nonproportional reinsurance or financing There are no active insured persons at the Foundation level. 7 Fluctuation reserve 7.1 Definition The is created or reversed for each pension provider (pension provider ) as well as at the level of the Foundation (Foundation ) in order to eliminate (short-term) fluctuations in the value of the investments. The target size of the pension provider fluctuation reserve is determined by the pension provider and the target size of the Foundation is determined by the Board of Trustees and is at least equal to the value calculated in accordance with section 7.2. If the pension provider does not determine a target size for the, this amount will correspond to the value defined in section Target amount The necessary target size of the is at least equal to the value that the Foundation identifies for each pension provider, or on the Foundation level, using financial economic methods. In this financial economic approach, the is determined based on the return and risk characteristics of the investment categories used in the investment strategy, which, with reasonable assurance, allows for the required minimum interest rates for the fixed pension capital over a two-year horizon. The target size of the is expressed as a percentage of the obligations. The goal is to achieve a security level of 98% over two years. B Use of surpluses 8 Surplus income / expenses prior to creation of Surplus income or surplus expenses correspond to the income / expenses surplus in the annual financial statements after creation of technical provisions and reserves in accordance with section 3 of the present regulations, as well as after payment of interest on the pension capital of active insured persons and pensioners. 8.1 Use of surplus income prior to creation of Any surplus income must be used in the following order of priority: a) Set-off against any existing loss carried forward b) Allocation to the until the target value is met c) Allocation to non-committed funds of the pension provider. 8.2 Surplus expenses prior to release of fluctuation reserve Any surplus expenses must be eliminated in the following order of priority: a) Reduction of the Foundation s available non-committed funds b) Reduction of the Foundation s c) Loss carried forward to later period. 5

6 9 Use of s and non-committed funds of pension providers 9.1 Use of s of pension providers The pension providers s created under section 8.1 b are used as follows: To cover any deficit of the pension provider in the event of a partial liquidation of the Foundation or the pension provider; if the affiliation agreement is cancelled, the pension provider will receive the or such reserve will be offset against any deficit. 9.2 Use of non-committed funds of pension providers As a rule, the pension fund commission makes decisions regarding the use of non-committed funds. The pension providers non-committed funds created in accordance with section 8.1 c and the transferred non-committed funds of pension providers may be used as follows: To increase the retirement savings of the insured persons of the pension provider. To cover any deficit of the pension provider in the event of a partial liquidation of the Foundation or the pension provider; if the affiliation agreement is cancelled, the pension provider will receive the non-committed funds. For the payment of contributions, provided that the Foundation is not underfunded; relief from contribution payments must be granted to the insured persons and the employer on a pro rata basis. The pension fund commission submits a proposal for the use of the non-committed funds, which must be approved by the Board of Trustees Foundation s coverage ratio (without pension providers) The coverage ratio of the Foundation (without pension providers) equals the relation between the available pension assets of the Foundation, on the one hand, and the pension capital of the pensioners, including any technical provisions, which are not maintained by an individual pension provider, on the other hand Foundation s coverage ratio (with pension providers) The coverage ratio of the Foundation (with pension providers) equals the relation between the available pension assets of the pension providers together with those of the Foundation, on the one hand, and the pension capital of the active insured persons and pensioners, including any technical provisions of the pension providers and the Foundation, on the other hand. The thus calculated coverage ratio is the average coverage ratio. 11 Participation in surpluses from insurance contracts Participations in surpluses from insurance contracts will be credited to the operating statements of the pension providers. 12 Entry into force These regulations enter into force on 1 January 2018 and replace the regulations on technical rules of 26 April Schwyz, 28 August Calculations of coverage ratio The coverage ratio is ascertained for each pension provider pursuant to the Appendix to Article 44(1) of the OPO 2. A distinction is made between the Foundation s coverage ratio and the pension providers coverage ratios. Tellco Pensinvest Board of Trustees 10.1 Pension providers coverage ratio The pension provider s coverage ratio equals the relation between the available pension assets of the pension provider, on the one hand, and the pension capital of the active insured persons and pensioners, including any technical provisions, on the other hand. Thomas Kopp Chairman Daniel Greber Member In case of differing interpretations, the German text is authoritative. 6