Coordination Deduction (Koordinationsabzug)
The coordination deduction is the fixed or percentage-based amount subtracted from AHV salary to align occupational pension provision with AHV benefits and avoid over-insurance.
Concept
The coordination deduction is the amount subtracted from an insured person’s qualifying AHV salary to determine the salary insured under occupational pension provision (BVG), known as the coordinated salary. The deduction serves to coordinate the first and second pillars: since the AHV already provides basic protection, occupational pension provision is intended to additionally insure only the salary portion exceeding this, avoiding unnecessary double insurance and correspondingly excessive premiums.
Structure
The coordination deduction can be structured as a fixed amount or as a percentage of annual salary; many pension funds now offer models with a lower, salary-dependent coordination deduction to achieve better pension coverage particularly for part-time employees with lower salaries, since a high fixed deduction would eliminate a disproportionately large share of insurable salary at low income levels.
Relevance for Advisory Practice
The size of the coordination deduction directly affects the coordinated salary and thus the amount of insured retirement savings; particularly for part-time work or multiple employers, correctly applying the coordination deduction is an important topic in pension advisory work, as gaps can accumulate.