Mercer | Pension settlements in the event of a divorce

Mercer | Pension settlements in the event of a divorce

revision of the divorce law

Pension settlements in the event of a divorce: 3 questions, 3 answers

CLICK HERE FOR THE GERMAN VERSION.

From January 1, 2017 the revision of the divorce law and thus the new rules on the breakdown of pension assets in the event of a divorce will come into force. What changes will result as a consequence of this revision? In our interview, André Tapernoux, head of the Retirement business for Mercer in Switzerland, answers the most important questions and explains what pension funds now have to be aware of.

What are the most important changes in pension settlements in the event of a divorce?


One of the most important points of the revision is that the entitlements during the marriage from occupational pensions now also need to be divided if a spouse at that time is already retired or is invalid. As a result, old age and disability pensions will be reduced where applicable in the future.

What is also new is that the division of entitlements from occupational pensions will be based on the date when the divorce proceedings are initiated. Against this background it is expected that it will only be necessary in future to calculate the settlement once.

Furthermore, pension funds must now register all persons for whom they had a credit balance as of December of the previous year with the 2nd Pillar Central Office on an annual basis.

What must pension schemes now bear in mind?


On the one hand, the board of trustees needs to act by adjusting the regulations. On the other hand, the technical administration in particular must verify and amend its procedures and documents.

The board of trustees must revise the pension fund regulations. In doing so it must include the new divorce annuity and, for example, decide whether instead of paying out a lifelong annuity, a one-off lump-sum payment should be provided for in the pension fund regulations. Furthermore, it must verify whether it is possible to reduce the disability pension of an obliged recipient in accordance with the pension fund regulations, and it must determine the grounds for the reduction. The board of trustees must also decide whether it should reduce the promised termination benefits awarded to the spouse by the court or the old-age pension the person is entitled to in cases in which an insured person is entitled to an old-age pension during the divorce proceedings. Moreover, individual articles of the regulation (e.g. survivors' benefits for divorced people) must be adjusted and transitional provisions should be introduced.

For the technical administration, the revision of divorce law means, for example, that the obligation to report to the 2nd Pillar Central Office must be incorporated during the course of its year. A new area of activity is the obligation for the absorbing pension scheme to request information from the old pension scheme regarding termination benefits that has not been disclosed. Additionally, it must be established and communicated how the BVG and Non-BVG savings are defined, how the termination benefits or pensions awarded in the divorce proceedings are distributed among these savings, and how  high the savings at age 50 and at the time of the marriage have been.

How do you classify the revision of the divorce law?


The revision of the divorce law, or more specifically the rules concerning occupational pensions in the event of a divorce, will lead to a fairer distribution of the entitlements acquired from occupational pensions. Reporting which persons have a credit balance in the pension scheme to the 2nd Pillar Central Office every year should also result in a fairer pension settlement. The settlement will apply to all the assets in occupational pension schemes. In my opinion, the introduction of a lifelong divorce annuity for spouses who are entitled to compensation whose former spouse is already entitled to an old-age pension is an important step towards equal treatment and fairness.

However, the new regulations as a part of this revision will result in an increase in administration costs for the pension schemes. These costs will be borne by all insured persons, regardless of whether they are getting divorced or not. Whether and how it will be possible to pass on the costs on to those parties seeking a divorce is still not clear.

 

How can Mercer help here?

With our flyer "Adjust pension fund regulations optimally with Mercer" we show you where action needs to be taken and how we can support you.

  Contact us
We’re eager to speak with you. Please provide your details below.
*Erforderliche Angaben