Pension planning How will I finance my stay in a retirement or nursing home?

In light of high nursing costs, many senior citizens and their children worry about their savings and assets. How can you preserve your assets and enjoy a carefree retirement? We spoke to the retirement expert Daniel Greber.

by UBS Insights 09 Oct 2018

Mr. Greber, what will I have to pay when I’m in need of nursing care?

That depends on how much care you need and where you live. At level 12 – the highest possible – you’d be looking at total monthly costs of CHF 10,021 in Zurich, CHF 9,540 in Zug and CHF 7,620 in St. Gallen. The statutory health insurance system and municipalities cover the greatest part of that. The monthly costs you’d have to bear yourself would be CHF 648 in Zurich and St. Gallen and CHF 324 in Zug.

That sounds acceptable.

That’s only the cost of care, I’m afraid. Room and board are more expensive. Rental costs often reach several thousand francs per month and have to be covered entirely by the residents of the retirement or nursing home. An example that comes to mind is a room in a well-known nursing home in Zug: It costs CHF 4,868 a month. Add to that support costs and the above care costs, and you’re looking at about CHF 6,900 per month that must be covered privately.

Meaning that you’d have to dig deep into your savings. Are there ways to protect your family wealth for your heirs?

You can start preparing early by setting money aside regularly should you ever need to go into a nursing home. If you end up not needing the accrued capital, then your heirs would get it. Alternatively, there is nursing care insurance.

But this type of insurance is known to be rather expensive.

Just a few days ago, I asked for a quotation from one of the leading insurance providers: If you’re 65 and want to take out nursing care insurance as pure risk insurance, you’d pay a CHF 145 monthly premium. If you need nursing home care, the insurer offers a CHF 200 daily allowance with a waiting period of one year.

Up to what age can this sort of policy be taken out?

Hardly anyone passes the medical exam shortly before the age of retirement. There are products where the rate is set according to the entry age, but those are expensive. The policy is more affordable if you address the subject early on.

Who is actually paid supplementary benefits?

People who can’t cover the basic costs of living through their pensions, income and wealth attrition are supported by public authorities. That’s the case for 39 percent of nursing home residents today. Everyone drawing AHV or IV benefits and domiciled in Switzerland is eligible. Those who are neither Swiss nor EU citizens must have lived in Switzerland for at least 10 consecutive years to be eligible for supplementary funds.

Can you protect your family assets through advances on inheritance and claim supplementary benefits earlier?

No, any amount advanced on inheritance or by way of a gift is always counted against the assets of the person in need of care. Until supplementary benefits are claimed, CHF 10,000 is deducted from advances on inheritance and gifts.

So those who’ve prepared for retirement will have to pay for their stay in a nursing home, while those who didn’t, get the same benefit for free.

This does in fact act as a disincentive and leads to a rise in supplementary benefits. It falls under the competence of politicians to correct this. In Bern, they’re discussing raising the barriers for supplementary benefits as well as enacting benefit cuts. But this program would place a burden on the older generation.

Can you think of a better alternative?

Avenir Suisse suggested mandatory individual nursing care insurance: from age 55, assets would be accrued to pay for later care and support costs. If these funds aren’t needed, they become part of the estate.

What do you think about initiatives to limit the withdrawal of pension fund assets?

Should we tar the general public with the same brush because of a few black sheep? There are no statistics or scientific studies on cases where pension fund assets were withdrawn and used up in a short amount of time and then supplementary benefits were claimed. In my opinion, it makes more sense politically to start educating people early on about the responsible use of money and our pension system. This would certainly benefit the state more.

Get ready for when you need nursing care

The average time people spend in long-term care is around two and a half years. At monthly personal costs of CHF 6,900 (see interview), many will have a financing gap after the deduction of the AHV and occupational pension. In many cases, this privately financed amount can exceed the CHF 100,000 mark.

Regularly set aside an amount to cover care costs. For example, by paying into an investment fund account every month (ubs.com/fundaccount).

So you participate in the performance of the financial markets and profit over the long term from greater earnings potential. If you pay in CHF 350 every month at an expected return of 2.5 percent in a well-balanced portfolio, you will have almost CHF 110,000 after 20 years.