Full Insurance vs Semi-Autonomous: Which Occupational Pension Model is Right for Your Company?

In our earlier article, we explored the important topic of choosing the right occupational pension fund (BVG) for your company  In this article, we will expand on one critical aspect of occupational pensions for smaller companies—especially SMEs—that do not have their own pension fund: should they opt for a full insurance model or a semi-autonomous solution?

Each model has its own advantages and trade-offs in terms of security, return potential, administrative requirements, and risk distribution. We explore both approaches in detail to help you make an informed decision that aligns with your company’s risk tolerance, financial goals, and long-term planning.

Understanding the Swiss occupational pension system

The Swiss occupational pension system (BVG), commonly known as the second pillar, plays a critical role in supplementing the first pillar (state pensions). It aims to help ensure employees maintain their standard of living after retirement, as well as providing disability and death benefits.

BVG is mandatory for employees earning over CHF 22,680 annually (as of 2025), and optional for employees earning under this threshold and for self-employed individuals. Employers and employees share the contributions, with employers being legally obliged to contribute at least 50%.

Collective foundations for smaller companies

Smaller SMEs that are not in a position to manage their own pension fund often join a collective foundation. These occupational pension schemes are typically managed by private insurance companies, community schemes, industry groups or professional associations. They pool contributions from multiple employers, allowing companies to benefit from shared expertise, lower administrative costs, and diversified investment strategies.

Within this framework, employers must choose between two main management models:

1. Full insurance model: All contributions are channeled into an insurance product with a conservative investment strategy. The insurance company manages the investments and guarantees all benefits, including both the retirement savings and risk-related benefits such as disability and survivors’ pensions.
2. Semi-autonomous solution: The pension fund or collective foundation manages investments independently while only insuring the risk benefit portion (i.e., disability and survivors’ pensions). This results in a greater equity component and exposes the employer and employees to some market risk.

You can find out more about pension options for the self-employed here: Pension fund for sole proprietorships and self-employed persons

Full insurance model

How does a full insurance model work?

In a full insurance pension model, the employer and employee contributions are paid into an insurance product. The insurance company then assumes full responsibility for managing these funds, guaranteeing both the retirement savings and the associated risk benefits—such as disability and survivors’ pensions.

The key feature of this model is the complete security it provides, as the insured amount is always 100% guaranteed irrespective of market fluctuations. This means the employer and employees are not exposed to any of the investment risk.

Key advantages of full insurance

• Risk mitigation: The insurer takes on all the investment risks, meaning employees’ future pensions are fully protected from market volatility. This complete risk coverage is particularly attractive for companies that prioritize financial predictability and security for their employees.
• Guaranteed benefits: Since the insurance company guarantees the benefits, there is no chance of underfunding. Employees are assured of receiving the promised retirement savings and associated benefits, regardless of the performance of financial markets. This enhanced predictability makes it easier to plan for retirement.
• Simplified administration: With the insurer in full control, companies have minimal administrative involvement. This can be especially beneficial for smaller enterprises that do not have the resources to manage complex pension fund operations.

Potential downsides of full insurance

Despite its high security, the full insurance model comes with certain limitations:

• Lower return potential: Because insurers must invest conservatively—typically with an equity component of less than 5%—the returns on the pension fund are modest. This means that while the benefits are secure, the interest paid on retirement savings may only just exceed the statutory minimum.
• Higher costs: The cost of insuring the full range of risks is reflected in higher administrative fees and premium charges. These additional costs can further erode the return on retirement savings that would have otherwise been achieved with a more flexible solution.
• Limited flexibility: The strict regulations governing full insurance solutions limit the ability to alter the investment strategy. For companies that desire a more active role in investment decisions or wish to take advantage of favorable market conditions, the lack of flexibility is an issue.

Semi-autonomous solutions

How do semi-autonomous solutions work?

Semi-autonomous pension solutions offer a different approach. In this model, the pension fund manages the investment portfolio independently, while an insurance component covers specific risks such as death and disability. The retirement capital, however, is invested directly in the financial markets. This approach offers the potential for higher returns if market conditions are favorable.

Key advantages of semi-autonomous solutions

• Higher return potential: The primary benefit of a semi-autonomous model is its potential for higher interest on retirement savings. With a more aggressive investment strategy, companies and employees can benefit from the upsides of market performance.
• Flexibility in investment strategy: Unlike the full insurance model, semi-autonomous solutions allow the pension fund’s board of trustees—comprising elected representatives from affiliated companies—to tailor the investment strategy. This can enable companies to respond more dynamically to market opportunities and risks.
• Cost efficiency: Generally, semi-autonomous models have a more attractive price-performance ratio. Lower administrative and insurance costs can result in a more cost-effective pension solution and thereby enhance retirement benefits for policyholders.

Potential downsides of semi-autonomous solutions

While semi-autonomous solutions offer the potential for higher returns, there are some important risks to consider:

• Exposure to investment risk: Unlike full insurance, the semi-autonomous model exposes the retirement capital to market fluctuations. This means that if the financial markets underperform, the retirement savings of employees could suffer.
• Risk of underfunding: In adverse market conditions, there is a possibility that the pension fund may become underfunded (i.e. the assets of the pension fund are not sufficient to cover its liabilities). To mitigate this, a portion of the returns is typically allocated to risk reserves, and in rare cases, additional contributions may be required from employers to cover shortfalls.
• Greater administrative involvement: Companies that opt for a semi-autonomous solution may need to play a more active role in the oversight of the pension fund’s investment strategy. This may involve regular reviews and consultations with the pension committee to ensure that the strategy remains aligned with the company’s risk capacity and policyholders’ goals.

Comparative analysis: weighing the options

A direct comparison of the two occupational pension models can help clarify which solution may be more appropriate for your company.

Below is an overview of the key criteria for evaluation:

1. Risk distribution

Full insurance

All investment risk is assumed by the insurer, ensuring that employees’ benefits are fully secured regardless of market performance.

Semi-autonomous

The investment risk is shared. The pension fund actively invests in the capital markets, offering the possibility of higher returns but also the chance of shortfalls if markets perform poorly.

2. Investment strategy and returns

Full insurance

Investment strategies are highly conservative, typically involving minimal exposure to equities. This guarantees a stable yet lower return rate, barely exceeding the statutory minimum. This model is designed for stability rather than growth.

Semi-autonomous

Investment strategies are more flexible and can be chosen to be more aggressive, incorporating a higher proportion of equities. This can lead to higher long-term returns when markets perform well. However, these returns are not guaranteed and can fluctuate with market conditions.

3. Cost efficiency

Full insurance

The comprehensive coverage and guarantees come at a higher cost due to the insurer’s administrative fees and risk coverage expenses.

Semi-autonomous

Lower costs can be achieved by sharing the investment risk. The flexible approach can result in a better cost-performance, making it especially well-suited for companies with a higher risk tolerance.

4. Administrative burden

Full insurance

Minimal involvement is required from the employer’s side, as the insurance company handles all aspects of investment management and risk coverage.

Semi-autonomous

Companies may need to participate more actively in decision-making processes and oversee the investment strategy, which could increase administrative responsibilities.

The verdict?

The decision between these two models ultimately rests on the company’s individual characteristics and preferences, including its risk tolerance, financial goals, and administrative capacity.

For companies that prioritize guaranteed returns and minimal involvement, the full insurance model is typically more attractive. On the other hand, those willing to take on market risks in exchange for the potential of higher returns might find the semi-autonomous approach more beneficial.

You can find a general overview of choosing the right pension fund in the article Choosing the right pension fund for your company.

Making the right decision for your company

When evaluating pension fund management models, companies should consider the following key factors:

Risk tolerance

Full insurance is best for companies seeking stability for their employees’ pensions, while semi-autonomous solutions suit those willing to be exposed to market fluctuations.

Consider the following questions when assessing your risk tolerance:

How much volatility can your business withstand?

If your company has a conservative approach to risk and cannot afford unexpected financial burdens, the full insurance model—with its complete risk coverage—might be the better option.

Are you comfortable with market fluctuations?

For companies that have a higher risk appetite and can manage occasional restructuring of contributions if the market underperforms, the semi-autonomous solution may offer more attractive growth prospects.

Long-term financial planning

Employers and employees with a strong focus on maximizing long-term investment returns may prefer the semi-autonomous approach. Factors to consider include:

Future investment trends:

While conservative investments provide security, they might not keep pace with inflation or evolving market opportunities. A semi-autonomous model, with its flexible investment approach, can better outperform inflation over the long term.

Demographic developments:

With rising life expectancy and changing workforce demographics in Switzerland, companies need a pension solution that can adapt to longer retirement periods. For this reason, semi-autonomous pension models are becoming increasingly preferred as they generally provide higher pension returns over a longer period.

Administrative capacity and expertise

Full insurance models minimize administrative effort, whereas semi-autonomous models may require more active oversight. Smaller companies often lack the in-house expertise and resources to manage a complex investment strategy. Employers should thus consider that:

Full insurance reduces the need for detailed internal oversight and can be implemented with relatively low administrative overhead.

Semi-autonomous models require a greater level of engagement from company representatives. However, this is generally manageable for SMEs, especially those with access to external advisory services.

Desired flexibility

The ability to customize a pension plan to the specific needs of your company can be an important factor:

Semi-autonomous models:

Often offer greater customization in terms of contribution levels, investment strategies, and risk-sharing arrangements. Companies can adjust the strategy over time as market conditions and internal requirements change.

Full insurance models:

While offering less flexibility, they provide a one-size-fits-all solution that guarantees a predetermined level of benefit without the need for frequent adjustments.

Trends in the Swiss pension fund market

Current industry trends indicate a growing preference for semi-autonomous pension solutions among Swiss companies. Several factors are driving this change:

Low interest rates

The persistently low interest rates on traditional fixed-income investments make the conservative full insurance model less attractive. The potential for higher returns in the semi-autonomous model can better compensate for the effect of low guaranteed interest rates.

Regulatory developments

Increasingly stringent investment regulations for occupational pension institutions are making it more difficult for fully insured models to generate the returns required to finance guaranteed benefits.

These changing regulatory conditions are promoting more flexible and responsive pension solutions. This trend is also reflected in the growing number of collective foundations that prefer semi-autonomous models.

Demographic change

Increasing life expectancy is extending the period during which people receive pensions in Switzerland. Many companies are therefore rethinking how they can secure adequate retirement benefits in the long term.

The modest returns offered by fully insured models may no longer be sufficient to guarantee adequate retirement provision. Semi-autonomous solutions, which offer a better balance between risk and return, are considered more adaptable to these demographic changes – particularly due to their potential for higher long-term returns.

Recommendations from the industry’s perspective

Industry analysts believe that fully insured models will remain attractive to security-oriented companies, but that dynamic financial markets and the need for more flexible investment strategies with higher return potential will lead more and more providers and companies to opt for semi-autonomous solutions.

Practical guidance for SMEs

Recent industry trends indicate a growing preference for semi-autonomous pension solutions among Swiss companies Several factors are driving this shift:

Low interest rates

Persistently low interest rates in traditional fixed-income investments have made the conservative full insurance model less appealing. The potential for higher returns in a semi-autonomous model can better offset the impact of low guaranteed rates.

Regulatory developments

Increasingly strict investment rules for occupational pension funds have made it more difficult for full insurance pension fund models to achieve the type of returns needed to finance the guaranteed benefits they offer.
These evolving regulatory frameworks encourage pension providers to offer more flexible, responsive solutions. This trend is reflected in the increasing number of collective foundations that favor a semi-autonomous approach.

Changing demographics

Rising life expectancy is extending retirement periods in Switzerland, which has led many companies to re-evaluate how to best secure adequate long-term pension benefits. The modest returns achieved with full insurance pension models may no longer be sufficient to properly provide for policyholders during retirement.
Semi-autonomous models that offer a better balance between risk and return are seen as more adaptable to these demographic changes due to their ability to generate higher long-term returns.

Key takeaway

Industry analysts suggest that while full insurance models continue to appeal to those prioritizing security, the dynamic nature of today’s financial markets and the need for more adaptable investment strategies that generate higher long-term returns have led many providers and companies to switch to semi-autonomous solutions.

Summing it up: the balance between security and growth

There is no one-size-fits-all answer when it comes to selecting the ideal pension fund management model for your company. While full insurance provides security and predictability, the flexibility and growth potential offered by semi-autonomous models align well with an increasingly dynamic market environment.

As Swiss companies face challenges such as demographic shifts, evolving regulatory landscapes, and a persistently low-interest-rate environment, the decision on pension fund management becomes even more critical. Companies that actively monitor market trends and adjust their strategies accordingly can better navigate these challenges, ensuring that their employees’ retirement provisions remain sustainable.

The increasing shift towards semi-autonomous solutions reflects a broader trend in Swiss pension management that aims at a more balanced approach to risk and return. With careful planning, ongoing oversight, and strategic advisory support, employers and employees can enjoy the benefits of a more dynamic investment strategy while still safeguarding the core promise of retirement security.

For executives with incomes above the BVG mandatory level, so-called 1e plans offer additional design freedom – read more in the article: 1e management pension plan: How 1e plans support top earners in Switzerland.