“Sensible retirement planning” series Ignoring our age is only human

It’s never too early to pay assets into a private pension fund.. This is crucial to maintaining your current standard of living in retirement. Despite this, a third of the Swiss workforce do not have a pillar 3a account and of those who do, only very few regularly pay in the annual maximum amount. Many people do not pay enough attention to private retirement savings, especially when they are young. In this part of our “Sensible retirement planning” series, we look at the reasons why and illustrate what you can do to mitigate this problem.

Many employees have at least some surplus money that they could invest privately for their retirement, but fail to do so. This is partly because we prefer to think about the near future rather than much further ahead. After all, the distant future is much more uncertain and requires us to think about the end of our lives. Systematically prioritizing our short-term pleasures and consumption habits over future goals (financial or otherwise) is what behavioral economists refer to as a “self-control bias” – in other words, a lack of self-control.

One of the reasons why private retirement provision is sometimes neglected is that the state also pays a pension, making our own responsibilities in this regard seem less urgent. However, it is important to remember that the pension system and the conditions surrounding it have changed since AHV (pillar 1) was introduced in 1948, as well as since the occupational (pillar 2) and private pension (pillar 3) systems were conceived in the early 1970s.

Demographic changes, e.g., an increasing number of retired people in proportion to the total population, are putting pressure on the first two pillars of our pension system. Reforms are needed to ensure the long-term stability of the AHV and pension funds. However, change is difficult because, regardless of their political preferences, people tend to be conservative (”conservative bias”) and stick with what they know. This prevents many people from considering demographics and their consequences when they vote or make decisions about their private investments.

Next to conservatism, there is also a tendency called “status quo bias,” whereby what has already been achieved is considered to be more worthwhile than what could still be achieved. However, this tendency tends to prevent us from adapting our strategic investment plan and its direction if circumstances change.