My pension has been shrinking for years. That's how it seems when I look at my pension fund statement. I am 52 and employed full-time as an administrator; my wife, 46, works part-time. Together we earn 115,000 francs a year and have two under-age children. For ten years we have been paying the maximum amount into a pillar 3a fund. Will our finances suffice in retirement?
Marc H., La Chaux-de-Fonds
Dear Mr. H.,
It's certainly a good idea to study your annual pension fund statement carefully. However, because you still have several years to work before retirement, the retirement benefits in your statement are only an approximation. On the one hand your insured salary can change, which would impact the amount of your pension. On the other, it's impossible to forecast with any certainty what the return on your retirement assets will be over the years, and how the pension conversion rate will develop. For instance, the Federal Council is proposing a gradual reduction in the conversion rate for the mandatory part of pillar 2 from 6.8 % today to 6 %. For 100,000 francs of retirement assets this would yield an annual pension of 6,000 francs rather than 6,800 francs. For the supplementary part of your retirement assets (that portion of your annual income that lies above 84,240 francs) pension funds can apply an even lower conversion rate.
Get a simple estimate of your AHV pension
To calculate your expected income after retirement, you also need to know what your AHV retirement pension will be. The Central Compensation Office provides a tool on the internet (www.acor-avs.ch) that lets you estimate this. The AHV branches offer to calculate your estimated retirement benefits free of charge if you are over 40.
In your case the AHV pension and the obligatory part of the pension fund will not even cover 60 percent of your previous employment income. You are therefore well advised to make provision using a pillar 3 plan. Pillar 3a funds present greater potential returns than 3a accounts but also entail higher risks. However, funds with securities such as UBS Vitainvest funds have generated better returns than accounts in the last ten years.
Pillar 3a funds present greater potential returns than 3a accounts but also entail higher risks. However, funds with securities such as UBS Vitainvest funds have generated better returns than accounts in the last ten years. Pillar 3a is often worthwhile simply to save taxes. Depending on your taxable income you can save between 1,000 and 2,500 francs a year based on the maximum offset contribution of 6,739 francs. When you draw on the 3a assets later, the capital tax due will depend on your tax domicile. So timing is crucial. If you have several 3a solutions, staggered withdrawals are recommended.
Plan carefully for the future
It's impossible to answer your question definitively. I'd advise you to carry out a financial check-up with a specialist at UBS. The aim should be not just to review the benefits from your pension fund and the pillar 3a options. You also need to analyze how you and your wife envisage the third stage of your lives. How long do you want to continue working? Does your wife wish to increase her working hours when the children become more independent? Does she have her own pension fund and pillar 3a? Finally, you should also look at your financial obligations and potential savings ratio. Do you have large cash reserves or investments? If so, these will be reviewed to see if they match your risk profile and generate the desired returns.
Nils Aggett is responsible for Pension Services and retirement planning at UBS.
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