While with the first pillar you can do very little to influence the overall results of your retirement, the situation is somewhat different when it comes to the second pillar.
The second pillar is still obligatory but there is a measure of choice about it that will likely end up giving some people much bigger or smaller retirement accounts.
Essentially it’s mandated that 2% of your salary will go into your retirement account and the state will match it with 4% (taking that away from the first pillar), meaning that for all intents and purposes you get 6% into your second pillar every year. It sounds a bit better on paper than the situation is in reality.
Choosing between bad choices
There is a whole wide range of different retirement funds that you can choose from. DIfferent banks offer generally at least 4 funds which are different in terms of their risk level (essentially stock-bonds ratio).
While having the option to choose is great, then it becomes a bit less useful when most choices are just plain bad. The funds have very high expense ratios (though they have gone down a bit), their returns have been abysmal and cashing out of the fund is so complicated and handled by insurance providers that some people will definitely end up having terrible deals.
The benefits and downsides of the 2nd pillar
There are some reasons why I like the second pillar. Mostly because it will force everyone to save some money at least. The first pillar will likely get smaller and smaller as time goes on, so the importance of the 2nd pillar for my generation is quite high.
The second pillar however suffers from a similar problem as the first – it’s heavily dependent on the amount of money you make. This means that people who live in poverty now will also be in poverty in the future. The differences between people’s wealth will carry off into retirement and some parents might end up being incredible financial burdens on their children due to not having enough money in the 2nd pillar.
My experience with the 2nd pillar
At first I had a terrible 2nd pillar fund that I finally got rid of when I started working full time. The fund I have now is doing OK compared to others on the market, but the net gain over the years is still negative when you take into account inflation. I have little faith that it will ever come close to the stock market’s historic return and I’m a bit saddened that we don’t have the American 401k system where I would be able to make the choices of what to do with my money.
There is a pretty big lack of social discussion about what to do with the 2nd pillar. As it stands now, it’s quite close to being an absolute failure. People don’t believe that they’ll get proper returns and that really keeps them from getting into investing. If you don’t pick your own 2nd pillar fund, then you will get one assigned randomly – that happens to several thousand people every year!
To make the second pillar work, this is what I’d like to see:
– increase the cap for investments (like, maybe max 10%)
– the government match should not come from the 1st pillar
– allow people more individual choice (why can’t I just choose a passive index fund instead of a badly managed active one?)
– drastically lower the maintenance fees to competitive levels with index funds (really, some funds had 2% fees at start!)
– allow for different exit strategies beyond the current insurance contract