Tips on providing for retirement

How much money will I have in retirement?

A survey conducted by Swiss Life shows that only about half of those approaching retirement are sure how much money they will have in old age. This is an alarming result, and one which underlines the need for comprehensive retirement planning.

According to the Federal Constitution, people who have not saved privately for retirement can expect to receive around 60% of their most recent income as a pension. This figure is based in particular on people with low to moderate incomes. The old-age pension is made up of the state (AHV/AVS) pension and the occupational pension and provides a financial basis for retirees. However, this amount may vary depending on individual factors such as personal income and contribution gaps.
 

Breakdown of retirement provisions

A three-component system ensures financial stability in retirement. It provides a stable income for when you reach the reference age. This proven model has three pillars and is designed to ensure your financial needs are met after you stop working.

First and foremost, you have the state benefits, i.e. the Old Age and Survivors’ Insurance (AHV/AVS). This first pillar ensures a subsistence income in old age, providing a basic level of cover for all people.

The second pillar, occupational provisions, supplements the state benefits. It is based on the principle of joint financing, with both employees and employers contributing. Regular contributions to the pension fund help accumulate a sum of money to supplement the state pension in old age. The aim of this pillar is to more or less maintain a person’s standard of living in old age.

The 3rd pillar is the private pension. Experts recommend you use the 3rd pillar to save privately for retirement. By saving and investing, you can close personal pension gaps and ensure financial self-determination in old age. Making use of this option is the perfect way to supplement the income from the first two pillars. The aim is to fully cover your financial needs in old age.

Planning for retirement today

In order to enjoy your retirement without worrying about your finances, it is important to plan your pension. You can start today by implementing effective strategies to secure your financial future. The following steps will help you create a solid foundation.

Create a budget

A well thought-out budget is the key to a successful and financially self-determined future. First, compare your regular income with your fixed expenses and make a note of your assets. Set clear savings targets and determine how much money you want to set aside for them each month. This kind of plan will help you define your financial priorities and track your progress.

Take advantage of pillar 3a

Pillar 3a provides an excellent opportunity to save for retirement while benefiting from tax advantages. By making regular contributions to tax-qualified provisions, you can reduce your taxable income and accumulate capital for your pension. The prerequisite is that you receive an income that is subject to AHV/AVS contributions.

Explore the possibilities of pillar 3b

Pillar 3b is part of the private pension provision in the Swiss three-pillar system and, together with pillar 3a, forms the third pillar. It provides a flexible way of saving for retirement that is not tied to the time of retirement, and can be used for various savings targets. Types of investment include savings accounts, bonds, equities, investment funds, structured products and insurance policies.

The advantages of pillar 3b include:

• The opportunity for every person resident in Switzerland to make contributions
• Free choice of beneficiaries, date of payout and how the savings are used
• No annual maximum amount

There are no direct tax advantages as with pillar 3a, but certain investments, such as capital-sum insurance with a surrender option, may be tax-privileged.

Voluntary purchases in the pension fund

Another effective way to optimise your retirement provisions is by making voluntary purchases in your pension fund. This will enable you to close any contribution gaps and take full advantage of the second pillar. As income generally rises over the course of your working life, this often results in contribution gaps. These can be closed with voluntary purchases, which also offer tax advantages.
Find out about the terms and benefits of such a purchase with a view to maximising your pension entitlement.

Review your insurance policies

Review your insurance policies regularly to make sure they meet your current and future needs. This includes life and disability income insurance. A prudent insurance strategy can offer you and your loved ones additional security in the event of unforeseen incidents.

Stay flexible

Your financial situation, goals and economic circumstances may change over time. An important tip is therefore to remain flexible and regularly review your pension plans and adjust them if necessary.

Dealing with contribution gaps

Gaps in pension contributions can have a significant impact on your pension entitlements and lead to financial difficulties in old age. Find out what causes these gaps and what measures you can take to close them effectively.

If you have gaps in your state pension contributions, you will receive a lower pension. Pensions are reduced by 1/44 for every year in which no AHV/AVS contributions were made.
Order an account statement from your social security administration office to check whether there are any contribution gaps in your individual account (IA).

How do contribution gaps arise?

Contribution gaps can arise for a number of reasons:

• Living abroad: Periods spent living and working abroad without paying AHV/AVS contributions.
• Short work assignments or part-time employment: Periods of low employment with no or minimal contributions.
• Raising children or studying: Periods when you did not work in order to look after your family or study.
• Economic inactivity: Periods during which you were not working for other reasons and did not pay any contributions.
• Moving to Switzerland later in life: If you did not move to Switzerland until after the age of 21 and therefore started paying contributions later.
• Early retirement: If you retire earlier than the reference age of 65.
• Divorce: If you get a divorce and your pension fund contributions are split.
• Reduction of conversion rate: The lowering of the conversion rate for occupational pensions means that the retirement savings are converted into lower pension benefits.
• High salary: Check whether your salary is fully insured. By law, salaries up to zweite-saeule-maximum-jahreslohn (aktuelles-jahr) are insured for both AHV/AVS and occupational provisions (mandatory portion). If you earn more, you should make sure that not only the mandatory salary is insured.
  

What you can do to close contribution gaps

In order to secure your full pension entitlement, it is important to make up any contribution shortfalls. Here are some steps you can take:

• Request an account statement: First get a detailed account statement from your social security administration office. This will state all the contributions paid to date and any gaps.
• Make top-up payments: You can make a make up any outstanding contributions from the last five years in order to secure your pension entitlement.
• Check for exceptions: Special exceptions are granted for gaps which arose before 1979. Find out whether these apply to you.
• Claim for junior years: If you completed an apprenticeship or course of study between the ages of 17 and 20, these years may qualify as contribution years.
  

Factors influencing pension assets today

Changes to your circumstances can have a significant impact on how much money you have in retirement. An awareness of these factors and proactive planning are key to ensuring financial security in old age.

Key events and their impact:

• Professional changes: Professional changes have a direct impact on your pension entitlement.
• Part-time employment / parental leave: Reduced working hours lead to fewer payments into your pension fund.
• Self-employment: Self-employed people are responsible for making their own arrangements for retirement.
• Early retirement: Taking early retirement can reduce your accumulated pension capital.
• Divorce: This can lead to the division of retirement savings and impact pension entitlements.
• Early withdrawal for home ownership: This reduces the capital available for your pension.
• Moving to Switzerland from abroad: Starting to pay contributions in Switzerland later will result in lower pension entitlements.
  

Retirement benefits and challenges for married couples

When planning their retirement, married couples need to take into account financial differences, which can be both positive and negative. A key point is the adjustment of pension entitlements when the maximum state pension (1st pillar) is reached. Married couples can draw a combined amount not exceeding 150% of a single pension. Once this limit has been reached, the single pension may be reduced by up to 25%.

Advantages for married couples

Despite this challenge, there are also specific benefits for married couples:

• there is more financial protection in the event of the death of a partner. This protection is guaranteed by state and occupational benefits. This means that survivors are better protected.
• Married couples share costs, especially for housing, which reduces outgoings and saves money. They have more financial freedom.
• Studies show that couples are generally happier with their finances, both before and after they retire.

The importance of a personal pension review

A personal pension review is essential for efficient retirement planning, as it gives you a comprehensive overview of your financial situation. By analysing your current finances and forecasting your future needs, you can create a personalised plan.

This plan will not only help you identify any gaps in cover and develop strategies to close them, but will also help you to optimise your retirement provisions overall. With a clear idea of what you need to maintain your standard of living in retirement, you can identify precise measures to achieve financial security.

These analyses are important as they allow you to look forward to your financial future with confidence and peace of mind, giving you the tools to proactively provide for your retirement.