Financial planning Co-habiting or married? A certificate changes things

Common-law partnerships are not legally equal to marriage. This is especially obvious when it comes to pensions. There are also a few differences between pillars 1, 2 and 3 that need to be taken into account.

If you get married, you are subject to marriage law. However, common-law partnerships are scarcely regulated by law. In particular, women living in common-law partnerships should acquire additional cover if they care for children and don’t work at all or only on a limited basis.

Twice the maximum pension in common-law partnerships

In common-law partnerships, both people have a right to a maximum individual old-age and survivor’s insurance (AHV) pension of 28,200 francs when they retire. That is 56,400 francs for the couple in the best case scenario. However, the pension amount for two individuals is reduced to 150 percent for married couples. Married couples collectively receive only a maximum of 42,300 francs. That is 14,100 francs less than couples without a marriage certificate (as of 2017).

No survivor’s pension as a rule

In the event that their spouse dies, a wife with children (regardless of their age) or a husband with children under 18 years old receives a survivor’s pension from pillar 1. However, no survivor’s benefits are provided for common-law partners in the event of death. This difference is especially significant for women or men who do not work and who care for children. Pillar 2 pension funds provide survivor’s benefits for married couples with dependent children. Pension funds may also stipulate survivor’s benefits for common-law partners. The pension fund regulations show whether this is provided for in your specific pension fund.

What you need to know

  • With a cohabitation agreement, you can provide clarity about the allocation of property ownership or the distribution of living costs.
  • You should notify the pillar 2 and 3 pension funds in writing about the common-law partner as beneficiary to avoid uncertainties in the event of death. The various formal requirements for beneficiaries must be clarified in detail.
  • In the event of a divorce, the AHV assets and pension fund assets acquired during the marriage are split equally. This regulation helps married women who do not work or who work on a limited basis to have higher retirement benefits. Common-law partners are excluded from this splitting if they separate, which can severely affect the retirement benefits of women who have lived in common-law partnerships.

Limitations to pillar 3a and 3b

Surviving spouses benefit first in pillar 3a. However, if you do not have a spouse when you die, your descendants and common-law partner inherit your estate in equal parts. However, for this to happen, the common-law partnership must have been in existence for at least five years, and the pension fund must have been informed by the pension fund member about the existence of the partner. The surviving common-law partner must share pillar 3a assets with any children. This can be problematic, for example if a mortgage on mutual residential property must be repaid with the 3a assets. In this case, the pension fund has to receive an alternative percentage distribution and the names of the beneficiaries in writing. A partner can be provided with additional security in an unrestricted 3b pension plan. In this case, you are free to nominate beneficiaries, but you must take inheritance law limitations into account.

No legal inheritance claims

Spouses have a legal inheritance claim. However, common-law partners get nothing in cases of inheritance. The free share of an inheritance at least can be allocated to your common-law partner under a will/inheritance contract.

Big taxation differences

Married couples are taxed jointly in contrast to common-law partners. Married couples with high incomes may be at a disadvantage because of the progressive tax bands. Spouses in all cantons are tax-exempt from inheritance and gift taxes. People living in common-law partnerships, however, are often taxed at the highest rate in many cantons.

When it comes to retirement, women are often in a worse position than men. It doesn't have to be like that. In this special women's edition of Pension News, we've put together the most crucial tips and information for them.