Close the pension gap Look and plan ahead and forget your worries

Your AHV pension and pension fund benefits may not be able to fully cover your income needs during your retirement. If you want to maintain your standard of living in retirement, you need to make additional provisions.

The Swiss pension system is based on three pillars: state, occupational, and private pensions. Each of these pillars supplements the others. The objective is to provide you with the best possible financial security.

  1. Understand the three-pillar system – how does the Swiss pension system work?
  2. Know your own three pillars – what benefits can you expect from your pensions?
  3. Close gaps in your pension cover – how can you accumulate the capital you need?

1. Understand the three-pillar system

Your state and occupational pensions form the foundation that allows you to maintain your standard of living. Your private retirement savings should cover any income shortfall.

Three pillars, one goal: financial security

The three-pillar system ensures financial security in old age

Source: UBS

With all three pillars in place you have financial security and can look forward to your retirement with confidence.

Pillar 1 provides a basic level of subsistence

The state pension covers your essential living costs. It provides a basic pension and is mandatory for everyone resident or working in Switzerland.

Pillar 2 ensures that you can enjoy a reasonable standard of living

Your occupational pension plan should ensure that you can maintain your accustomed standard of living in old age. Together with your state pension, this should cover 60% to 70% of your final salary. Occupational pensions are the responsibility of pension funds, and are mandatory for all employees with an annual income of CHF 21, 150 or more (as at 2015). Self-employed individuals can voluntarily insure themselves under the second pillar.

Pillar 3 makes up any income shortfall

Your private pension should cover any income shortfall remaining despite maximum benefits from the first and second pillars. Setting up your third pillar at an early stage will help you to maintain your accustomed standard of living. Making payments into your third pillar not only allows you to accumulate assets, but also helps you to benefit from tax advantages.

2. Know your own three pillars

Particularly when you have a higher income, there can be a big difference between your final salary and the pensions you receive from the state and your occupational pension scheme.

Invest in a secure future and save tax

Retirement benefits from the three pillars according to annual salary

Calculation based on a full contribution period for AHV and obligatory BVG.

Source: UBS, as at January 1, 2015

What can you expect from your state and occupational pensions?

Unbroken contribution years are the best way to secure the maximum possible AHV pension. Your social security administration office will be happy to provide you with detailed information on the AHV pension you can expect.

Your pension from your occupational pension plan, on the other hand, is based on your saved retirement capital and the conversion rate. This determines the level of your annual pension as a percentage of the accumulated retirement capital. All the details regarding your occupational pension scheme can be found in the pension fund regulations. Your annual pension fund statement will provide you with information on the current status of the benefits you can expect.

Is there an income shortfall in your pension budget?

Put together an overview of your current expenses. How will your retirement budget differ from this? Lower rent? Extensive traveling? Experience shows that people’s spending in retirement amounts to around 80% to 100% of their prior expenditure.

Do you have additional income such as rental income, interest from savings accounts and bonds, or dividend payments?
The more precisely you can quantify your retirement budget, the more accurately you can predict the level of any expected shortfall.

In most cases, your expenses will exceed your income following retirement. Multiply your income shortfall by a factor of 20. This equates to the approximate amount that you will need to save prior to retirement in order to eliminate this shortfall.

3. Close gaps in your pension coverage

In order to close an anticipated gap, you can make a voluntary purchase into your pension fund in order to increase your expected pension.

Restricted pension 3a and unrestricted pension 3b provide flexible options for building up your private pension. The earlier you start, the better. You can find helpful information at Save for retirement.

To ensure a financially comfortable retirement, it is always advisable to establish a comprehensive plan for your retirement in good time. Take the time to talk to us during a personal consultation.

You can find additional information on financial protection in case of disability or death at Concubinage, family, divorce.

The capital needed to cover the income shortfall

Income gap between what is covered by the three-pillar system and employment income

Source: UBS



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