The birth of a child, purchasing a home or separating – far-reaching changes are a regular part of family life. And these changes can really turn life on its head.It is important that the family’s financial security keep pace with the changes.

  • Women give birth to their first child at the age of 30.7 on average

  • In 77% of families, the woman is gainfully employed

  • Ten-year-olds receive an average of CHF 16 in allowance monthly

Hedging risks

Children not only change your everyday life – they also have a direct impact on pension provisions. And there could be even more changes: separation, illnesses, accidents and disability are risks that are difficult to quantify and can become a major financial burden. The family portrait with Denise and Sandro provides an absorbing look at the challenges that young families face and the questions that they must ask themselves. See for yourself!

Illness, an accident or disability can have an especially serious financial impact if the main breadwinner is affected. While employees are protected against the financial consequences of the inability to work and receive an IV pension after a certain amount of time, at 60 percent of the previous income, this isn’t enough to maintain the individual’s accustomed standard of living. Disability insurance can help you close this income gap. 

If you were employed when you gave birth, the maternity leave has no impact on your occupational provisions. You will receive income replacement through the ordinance on indemnity for loss of earnings (EO) or a maternity allowance (MSE). In addition, you will continue to be insured through the second pillar and can expect pension fund benefits as well. In the event of the disability or death of one of the parents, your child will be financially protected thanks to a child’s pension or an orphan’s pension. The only event for which there are no benefits is if a child becomes disabled. You should obtain additional cover for your child for this risk if possible. 

Less work means lower retirement benefits. Your retirement assets will be lower, and your pension as well. You can fill the gaps in your occupational provisions – for example, with a 100% tax-deductible pension fund purchase. You can also save for old age with pillar 3a while protecting yourself further against disability and death.

If you stop working entirely in order to care for your children, then this will have an even greater impact on your pension provisions. When you are older, or if you become disabled or die, you will only receive benefits from the first pillar in the form of an AHV or IV pension – unless you have some pension capital saved in the second pillar when you stop working.

First pillar (AHV)

In a household in which the parents are an unmarried couple and one person takes care of the house while the other works, then only the employed partner is paying AHV contributions. The partner without an income or with a low income will receive only a small pension. The unemployed partner will also go empty-handed in the event of death, as there will be no AHV pension. Only the children will receive an orphan’s pension in the event of the death of the mother or father.

This is what you should do: 

  • The non-employed partner should also make seamless AHV contributions – and he or she should do so as a non-working individual.
  • For children under age 16, the social security administration office provides a childrearing credit each year. Have this deposited in the account of the non-employed parent.
  • Conclude life insurance as financial protection in the event of the death of the cohabiting partner

Second pillar (BVG)

Occupational provisions are separate in the case of cohabiting partners. In the event of divorce, the assets are not separated as they are with spouses, and there is no entitlement to a pension from the partner’s pension fund. In the event of one person’s death, the surviving partner has no statutory entitlement to the deceased partner’s pension. However, some pension funds have special rules in this regard, although they are not required to do so.

This is what you should do:

  • Ask your pension fund if there is generally an entitlement to benefits in the event of one partner’s death.
  • Learn about the exact terms and conditions in a timely manner.
  • Draw up a cohabitation agreement as proof of the partnership for the pension fund.

Third pillar

Pillar 3a
Cohabiting partners have no entitlement to the partner’s pillar 3a assets in the event of separation. In the event of death, the partner’s assets are distributed in accordance with matrimonial property and inheritance rights. Accordingly, the cohabiting partner and any children with the deceased will rank second behind the individual’s spouse if they have not yet been legally divorced.If there are no children from a previous marriage and no previous spouse, then pillar 3a is very suitable as the pension provisions for cohabiting couples.

Pillar 3b
With pillar 3b, the claims are based entirely on inheritance law. The beneficiary is freely selectable, although it is necessary to take account of the statutory portions. Unmarried partners will go empty-handed if they are not included in the will. 

This is what you should do:

  • Pillar 3a: tell the bank or insurance company in writing who your partner is and that they are the beneficiary. Record this information in the will to be on the safe side.
  • Pillar 3b: Draw up a will in order to provide security for your partner in the event of your death.

How families can save

Children result in change – including for the family budget: because of the reduced level of employment, part of the family’s income disappears. In addition, the young family will experience high costs for daycare and childcare, and they may still want to put some money aside for holidays or their children’s education.  In the family portrait with Anne-Cécile, learn about the challenges that a young family faces and how they manage their household budget.

Children need clothes, food and money for leisure time, holidays and education. For example, a newborn child adds around CHF 300 to CHF 400 per month, according to Budgetberatung Schweiz. And the costs rise as the child grows older: children ages seven to 12 need around CHF 500 to CHF 560 per month. The most expensive are children ages 13 to 18: depending on which educational route they choose, they can cost CHF 650 to CHF 800 per month. Paying for studies is also more expensive than vocational training with an apprentice’s salary.

Each additional child represents an additional financial burden, but compared to the first child the expenses fall.

Especially for families with a low income, children can be a financial challenge: a child will cost on average CHF 200,000 by the time they reach their 20th birthday. And these are only the direct costs for clothing, food and personal hygiene, leisure time and spending money, but not including additional expenses, such as dental work, hobbies and mobile phones. So it is worth taking a look at the family budget. This will allow you to quickly see which additional costs you can avoid.

Despite the average figures, each household budget is individual. To enable you to see the financial impact of your children in future, use the Swiss Life budget calculator.

You can save up to CHF 2000 in taxes each year with pillar 3a – private tax-qualified provisions. Take care of yourself and your family at the same time.

Your tax benefits at a glance:

  • You can deduct pillar 3a contributions from your income.
  • Pillar 3a assets, including income, are exempt from taxation until you retire.
  • On payment, the 3a capital remains distinct from other income and is taxed at a lower rate.

Use the Swiss Life tax calculator to determine how much you can save in taxes with pillar 3a.

Residential property

Owning a home is the dream of many young families: allowing the children to have a room of their own and having enough space so the parents can have some quiet time now and again as well. Financing is the most important question here.  The family portrait with Daniela provides an exciting look at the life of a young family and shows the questions that families face in making their dream of owning a home come true. See for yourself!

You must plan at least 20% equity for the financing; only 80% of the purchase price can be financed via a mortgage. So if the purchase price is CHF 1 million, the required equity is CHF 200,000. This is a major hurdle, especially for young families and couples. In addition to bank assets and securities, however, there are other options for coming up with the equity.

You can use your pension fund to obtain equity capital: either through an early withdrawal or via a pledge. Pillar 3a assets can also be used to purchase property with more or less the same rules.

Early withdrawal: your pension fund certificate will show you the amount you can withdraw early. However, an early withdrawal will reduce your retirement capital. In addition, pension funds generally also reduce death and disability benefits. Since 2012, however, banks and insurance companies have required 10% in “true” equity for real estate financing, i.e. equity that does not come from occupational pension provisions.

Pledge: with this option, you maintain your insurance cover and retirement capital and can use them as collateral for a higher mortgage. However, you will also have to pay a higher interest rate.

Tip: you are generally better off with a pledge, as your retirement provision is not put at risk.

With a prepayment of inheritance, your parents provide you with a certain amount of money during their lifetime. By law, this amount must be set off against the subsequent inheritance (offset obligation).

The following points should be kept in mind:

  • The details of the prepayment of inheritance should be set out in writing.
  • The statutory portion of the other heirs must not be affected.
  • Inform your siblings about the prepayment of inheritance in order to avoid disputes.

One alternative is a personal loan from your parents or one of your friends. This money is generally accepted as equity by financial institutions. A contract that sets out the details of the loan should be drawn up and reviewed by a notary or an attorney.

As this topic is very complex, we recommend that you seek advice. Analyse your financial situation together with a Swiss Life advisor and receive tips related to the topic of home financing. Arrange an appointment today.

 Do not underestimate the ongoing costs of a home purchase. These can be divided into three parts. Interest costs, amortisation and maintenance and ancillary costs:

  • imputed interest rate of 5% on the entire mortgage debt
  • 1% of the entire mortgage debt for the amortisation of the second mortgage
  • 1% of the purchase price for maintenance and ancillary costs

As a rule of thumb, these costs should not exceed a third of the couple’s gross annual income, including other sources of regular income.

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