Split or enveloping conversion rate: What is the difference?

The amount of the annuity depends on the conversion rate. It indicates what percentage of the retirement capital is paid out annually as a pension. A distinction must be made between the mandatory and the non-mandatory portion:

• The mandatory part covers salaries between the entry threshold and the upper limit (BVG maximum). At retirement, the minimum conversion rate determines how the retirement assets are converted into a pension at normal retirement age. This rate is defined in the BVG and is currently 6.8%.
• For the non-mandatory part of the retirement savings capital, in particular from pension fund contributions on salary components above CHF 88'200, the pension funds can set a free conversion rate. Whether or not the salary above the mandatory BVG amount is insured depends on the plan that the employer has concluded with its pension fund.

If salary amounts are insured in the mandatory and non-mandatory pension plans, the pension fund can use either the split or the enveloping conversion rate to calculate the pension.

Depending on how the mandatory and non-mandatory retirement assets are divided, the result for the pensioner may be different. However, the latter is only permitted if the total pension is at least equal to the minimum pension calculated with a conversion rate of 6.8%.

Here is an example to illustrate this:

A retiree has accumulated pension fund assets of CHF 250'000, of which CHF 200'000 is the mandatory portion and CHF 50'000 is the non-mandatory portion.

• Minimum pension: CHF 200'000 × 6.8% = CHF 13'600
• Pension with enveloping conversion rate: CHF 250'000 × 5.5% = CHF 13'750
• Pension with split conversion rate: CHF 200'000 × 6.8% + CHF 50'000 × 5% = CHF 16'100

As the annual retirement pension with the enveloping conversion rate in this example is higher than the minimum pension, the reduced conversion rate of 5.5% is justified.