Retirement provisions: what tips can I use now to prepare for my retirement?

1. How much money will I have in retirement? 

In a representative population survey by Swiss Life, only around half of those who will soon retire are confident that they know “relatively precisely” how much money they will receive after retirement. Based implicitly on the Federal Constitution, discounting private provisions, you can expect about 60% of your income prior to retirement. However, this depends on a number of factors, such as income and contribution gaps. 60% is the benefit target for low and medium incomes. The money is made up of state and occupational provisions, the AHV and pension fund. 

2. What is the composition of my retirement provisions?

Swiss retirement provisions are based on three pillars. The 1st pillar is state benefits. It covers the subsistence level through the AHV. The 2nd pillar comprises occupational provisions. Employees finance them together with the employers by paying salary contributions into an employee benefits institution or pension fund.

The 3rd pillar is private provisions. Experts recommend you use the 3rd pillar for private provisions. This allows you to close any gaps in coverage that might arise between the accumulated benefits from the 1st and 2nd pillars and your financial needs.

3. How can I prepare for my retirement now?

a) Budget plan

When drawing up a budget plan, you need to compare the fixed income and outgoings as well as listing assets. Think about your personal savings targets and the period during which you want to achieve them. Ask yourself also what you want to put aside each month for your financial future.

b) Open pillar 3a

Pillar 3a is tax-qualified and offers comprehensive tax advantages: payments up to the statutory annual maximum amount reduce taxable income. Earned income subject to AHV contributions is the prerequisite for paying into pillar 3a. Find out more about pillar 3a.

c) Open pillar 3b

Pillar 3b is non tax-qualified provisions and combines all assets that are not included in pillars 1, 2 and 3a. Pillar 3b includes traditional saving and investing for medium- to long-term savings targets, such as for residential property, retirement, a pension fund purchase, training, a new car etc. The advantage is that you save with tax advantages because the returns and dividends are not taxed as income. Pillar 3b also covers individual risks such as death and disability. Find out more about pillar 3b.

d) Pension fund purchase

Every month, you – together with your employer – contribute to the 2nd pillar. To make full use of 2nd pillar benefits and at the same time benefit from tax advantages, you can make an additional pension fund purchase in most cases.Such purchases are contingent on a contribution gap. As income generally increases over working life, there are contribution gaps for almost all those insured with pension funds. Further information on a voluntary 2nd pillar purchase.

4. What to do in case of contribution gaps? 

If you have AHV contribution gaps, you will receive a lower pension. The pension is reduced by 1/44 for every year in which no AHV contributions were paid. 

Order an account statement from the social security administration office and check whether there are any contribution gaps in your individual account (IA). 

How do contribution gaps arise?

Contribution gaps arise when the employee has not paid AHV or occupational pension contributions:

• Stay abroad
• Very short assignments
• Maternity, studies (years without working)
• Persons not in gainful employment who are not registered with the AHV
• Moved to Switzerland aged 22 or older
• Vested benefits which have not been transferred to the pension fund by the employer 

There are ways to close contribution gaps

• You can repay missing AHV contributions within five years
• Exceptions are granted for contribution gaps which arose before 1979
• If you completed an apprenticeship between the ages of 17 and 20, you may have it counted as "junior years"

If contribution gaps cannot be closed in this way

• Using an individual pension analysis, you can calculate how much income you have after accounting for the reduced AHV pension, pension fund and assets
• Offset the contribution gap with a private 3rd pillar
• It is possible to defer the pension (for up to five years). It doesn’t mean you receive a maximum pension, but it does increase the AHV pension.

5. What is already having an impact on my pension assets today? 

Many people are unaware that different career paths already have an impact on their projected pension and capital. Certain life events such as self-employment, part-time work, divorce, early retirement, gainful employment without being affiliated to a pension fund, an early withdrawal to finance residential property (WEF) or late immigration from another country have a noticeable impact on the monthly pension.   

6. Are married couples at a disadvantage when it comes to retirement?

Married couples are at a disadvantage on retirement, as state benefits are reduced for married couples on reaching the maximum pension. Married couples receive a maximum of 150% of the maximum individual pension, so their pension is reduced by 25% each. 

However, married persons are in a better position regarding contributions from state and occupational benefits in the event of their partner's death. Married couples also live more cheaply. Costs are usually divided by two, in particular housing costs. On average, couples of retirement age (and before) are more satisfied with their financial situation than one-person households. 

7. When does professional financial planning make sense?

Experts normally recommend professional financial planning from the age of 50. However, this is very individual depending on your situation in life. Generally speaking, those who plan earlier have more options in the third phase of life.

What must I take into account before retirement?

^{images: Philip Brand}