Pension Check Is my pension safe?

Retirement – finally do what you always wanted to do. But, with what money? An analysis of AHV and Pillar 2.

by Stephan Lehmann-Maldonado 22 Aug 2016

Today’s workers support today’s pensioners – that’s how the AHV pay-as-you-go system works. Illustration: Christophe Badoux

The muesli is on the table and the juice has been pressed. It’s just like any other breakfast – until I notice the first pimple on my son’s nose. I touch my forehead and realize that my hairline has receded even further.
“Age catches up with you sooner than you think,” is what they say in the UBS retirement planning advertisement. Another 22 years and I’ll be a pensioner, which I’ll remain for a good 20 years or so. On average, retired Swiss men live to 86, and women to 88. Will my pension last that long?

The AHV

Our forefathers founded the first pillar of the Swiss pension system, the AHV, in 1948. Unfortunately they had no idea how life expectancy would rise. They calculated that people would live for 13 years after retirement. Since then, life expectancy and pension payment periods have almost doubled. In 1948, there were 6.5 workers for every pensioner. Now there are only 3.7. Fewer and fewer workers have to fund more and more pensioners.

In 1948, people were overjoyed to get the minimum pension of 40 francs a month. In today’s terms, including inflation, that’s equivalent to 184 francs. But the minimum pension for a single person is now 1,175 francs. Why the difference? The AHV was originally intended to relieve the hardship of the elderly poor. Nowadays, we want to maintain our standard of living after retirement. To make sure the sums add up, the state pumps billions into the retirement system every year. So there’s only one thing I can be sure of – my AHV pension is not secure.

Pillar 2

Does the Pillar 2 scheme make me feel more hopeful? Unfortunately not. Pension funds are also having to pay more pensioners for longer. Since 2003, they’ve awarded higher interest on pensioners’ assets than on those of active workers. The young are subsidizing the pensions of the elderly. Yet the aim of the second pillar is for everyone to accumulate their own retirement savings and use them to finance their pension.

The mandatory benefits are dictated by law via the conversion rate, which determines the pension amount. The statutory conversion rate is currently 6.8 percent. So retirement assets of 100,000 francs mean an annual pension of 6,800 francs (100,000 × 6.8 percent). When it comes to supplementary benefits, pension funds have more freedom. That’s why many have cut the conversion rate for these, for instance to 5.8 percent for men and 5.6 percent for women, or even lower. “A mathematically correct conversion rate would be 4.4 to 5.4 percent,” says Veronica Weisser, a pension specialist at UBS. In short: Pillar 2 doesn’t offer me any guarantees, either.

Pillar 3a

So when it comes to retirement, I have to rely on myself – specifically on voluntary, restricted retirement savings. Deposits into a Pillar 3a account or custody account are tax-deductible. Anyway, where was I? Ah, yes! Time for my muesli and juice – maybe they’ll help stave off hair loss.

Watch out, retirement ahead!

Pillar 1

Pillar 1 does not come on its own accord after retirement. You have to register your claim three to four months before your retirement starts with the cantonal compensation office. Shortly before reaching retirement age, you can have your pension calculated.

Pillar 2

Drawing on the pension fund capital is to be reported up to three years in advance depending on the fund.

Pillar 3

Please note especially for married couples when retiring: Withdraw capital from Pillars 2 and 3a over several years in order to break the tax progression.