Both the country and the company have a long tradition of providing workers with complementary pension schemes. Vevey-based Nestlé pension scheme covers employees working for the company’s different sites across Switzerland.
With around e2.2bn assets under management, the scheme follows a defined benefit/defined contribution (DB/DC) model, as it believes this hybrid provides the best solution for both employees and employers.
The structure and administration of the fund has been defined throughout the years, adapting the plan’s functioning and benefits arrangements to the developments within the industry. The scheme’s management team focuses on both the development and improvement of the plan’s structure and the explanation of how everything works to the members.
To understand how the scheme is structured it is necessary to concentrate on basics. The core of Nestlé’s retirement system is its ‘retirement savings account’, a guaranteed interest rate and supplementary interest depending on the fund’s performance.This savings account is used to finance the pension, including future survivor benefits. This is comprared with the ‘Nestlé target’, a pension formula based on final pensionable salary and years of service.
The scheme also has a complementary fund in case the retirement pensions needs to be supplemented. This complementary fund is financed by the employer only, and contributions to it are capped above the long term of the plan, but still at a level considered acceptable by the company. This way risks of open-ended liability for the company are mitigated.
The scheme offers different options to its members when it comes to when and how they want their pension to be paid. Payments of pensions correspond to the higher of the DB of DC calculation and are subject to a partial conversion into a lump sum limited to 50% of the total pension to be paid. Also members of the pension scheme of Nestlé can opt for early retirement, only if this is taken up to five years before the normal retirement age. Death and disability benefits for active members are also covered, always based on a pure DB concept using the same pension formula as for the target retirement pension.
The possibility of making additional voluntary contributions (AVCs) is also contemplated under the scheme operational framework. These AVCs can be either used to cover missing years of service or to finance early retirement. AVCs are credited to a separate retirement savings account which is not integrated in the ‘Nestlé target’. This account is remunerated as the regular savings accounts, and over the past five years, total interest credited averaged 9.6%.
All this makes the Nestlé pension scheme quite a flexible fund, at least as compared to Swiss standards.
The team involved in the management of the scheme knows that the functioning of the plan is complex and that full member understanding of what the contribution options are and how the benefits arrangements work is crucial. To get this message across, special efforts have been made to improve information and communication. In addition to the explanation of the scheme’s basic rules, the production of annual reports and the possibility of arranging personal interviews on request to give advice to members, their communication policy includes booklets describing both the DB and the DC components of the scheme, showing practical examples of benefits calculation.
An intranet site has also been developed and contains detailed descriptions on how the scheme operates, all types of written documents, financial aspects of the pension fund, general information on pensions and links to other interesting sites. More recently a new simulation tool has been included, offering the possibility to members to calculate their pension on retirement covering both DC and DB aspects.
Members approaching retirement also received personalised information about the different options available. This particularly covers the explanation of pension payments and how voluntary additional contributions could improved the final payable pension. Because Switzerland is a multi-cultural and multi-language country, both the general information regarding the scheme and its intranet side are available in French, German and English.
Also, as Nestlé has several sites across the country, presentations to employees are not only concentrated on the company’s headquarters but also across every single factory and office building of the company. On top of all this, news stories regarding the scheme and pension-related matters are included in the company’s magazine.
The scheme has been able to develop a sophisticated structure, following Swiss regulation and international standards on pension management, that benefits both employee and employer. Its communication efforts have made possible that members can get to know and benefit from all the options contemplated under the fund’s operational framework, at the same time they get used to dealing with pension-related issues and investment management.





Topics