How to protect your family with Pillar 3

Risk protection for every family model

Whatever its form: For most people, the family is one of the most important things in life. In order to continue to enjoy a good family life over the long term, it's important to deal with issues that could tarnish the family's happiness.

Whether a divorce, pension gaps, or strokes of fate such as accidents, illnesses, or death – no family is exempt, but you can protect yourself by planning ahead against potential risks.

No two families are the same

Every family is different. Married with children, unmarried parents, a divorced and single parent, same-sex couple with children, or a patchwork family – the number of potential family models has seen a big change in recent decades in the wake of social developments. Even if most families still correspond to the classical constellation – married parents and their biological offspring - , every fifth Swiss child is already growing up in a family with unmarried parents or another non-traditional partnership. And looking to the future, alternative forms such as families with a single parent, patchwork and rainbow families will increase further.

 

Pension provision for your family model 

Even the traditional family has to take a lot of issues into account when planning its old age and risk protection. However, this model is relatively well protected in law due to the marital bond, making it all the more urgent to respond to the question of how to comprehensively protect family members of unmarried models against possible risks such as loss of earnings and the death of the principal earner.

What family constellation are you part of?

The traditional family

Despite social upheaval and the associated alternative options, the traditional nuclear family is still widespread in Switzerland. It is defined as married parents and their biological children. In this family model, the father generally assumes the role of the principal earner, while the mother usually looks after the household and the children with no remuneration or social insurance coverage. In many regions today, a more modern version of the family model is common, the so-called weak breadwinner model, in which the mother is in part-time paid work in addition to her care duties.

The legal situation of the traditional family

Among the possible family constellations, the married model with child or children enjoys the greatest legal protection in Switzerland. All personal and property relationships of the married partners are regulated by law. As an example, the parents are automatically granted shared custody from the birth of a child. In addition, as a family, there is provision for old age and they have a mutual obligation to provide assistance as well as a mutual inheritance entitlement. If an accident or illness occurs, they also have the right to receive medical information. 

What risks do traditional families face?

In the traditional family model, risks often arise from an imbalance between the principal and supplementary earners.

  • Pension gaps: Many couples reduce their working hours as soon as a child is born. However, if only one parent generates the bulk of the family income or if both parents work less to free up time for childcare, gaps in their pension provision are inevitable - for each percentage reduction in working hours, there is a loss of pension benefits in the first and second pillars
  • Disability or death: What happens if the family's principal earner is suddenly hit by illness, an accident or death?
  • Divorce: The retirement assets of the partners derived from the AHV and BVG are split in the event of a divorce (pension benefits settlement). It can be critical if one of the partners has already made an early withdrawal of pension fund assets to become self-employed or to finance residential property.

Protecting the traditional family

Anyone seeking comprehensive protection for their family against risks is well-advised to take these precautionary measures.

  • Purchasing pension benefits: In order for a family to avoid financial bottlenecks in the event of disability or old age, pension gaps resulting from a reduction in working hours should always be filled again as quickly as possible by purchasing pension benefits.
  • Provision with Pillar 3: By saving for old age under the tax-advantaged Pillar 3a, you also secure your family against the risks of disability and death.
  • Occupational disability insurance: In case the principal earner suffers an accident or becomes occupationally disabled, occupational disability insurance ensures that the family's standard of living does not suffer and that even in old age they are not threatened with financial bottlenecks.
  • Death insurance: For families in which one parent generates the bulk of the income, death insurance is recommended. This insurance offers financial support in that it helps the survivors to cover their living costs or pays their education and training expenses. If the family has a mortgage, insurance is basically a necessity. The family can then remain in the family home should a parent die.

Concubinage with children

More and more couples are opting for cohabitation instead of marriage which, although superficially very similar to marriage, can, in contrast, be informally terminated at any time. In addition to tax and cost advantages, most couples see the lack of legal obligations as the biggest advantage over marriage. This means greater freedom in everyday life, but also less security for the partners and their children in an emergency. If you are cohabiting rather than married, binding rules become an advantage at the latest when you want to start a family.

The legal situation in concubinage with children

For unmarried couples in concubinage, there are no binding rules. All obligations between the life partners have to be drawn up independently and written down in a cohabitation agreement. Hence, the father, for example, is not automatically related to the child from birth – the legal parent-child relationship initially only applies to the mother. For the father and child to be connected by a legal relationship, the paternity must first be officially recognized. 

What are the risks in concubinage with children? 

The freedom of living together without a marriage certificate often becomes a disadvantage in an emergency. Many couples live in a de facto marriage, but lack equal protection on separation or death. Inheritance and pension planning require particular attention.

  • Separation: Especially if a life partner is only in part-time employment or does not work at all and takes care of the children, there is a risk of that partner leaving the partnership empty-handed if it should end. First, because only the employed partner pays AHV contributions, and, second, because the pension assets do not have to be divided as for married couples.
  • Death: In the event of death, cohabiting partners are left empty-handed because no AHV pension is provided. Only the children of unmarried parents receive an AHV orphan's pension if the mother or father dies.

Protecting concubinage with children

  • Cohabitation agreement: Anyone wanting to show commitment toward their life partner should make arrangements to give them financial security. A cohabitation agreement can be used, for example, to carry out individual estate and retirement planning.
  • Maintenance contract: It is recommended that the parents' obligations and rights are regulated in a contract from birth and that a maintenance contract is drawn up for the children. This should be approved by the guardianship authority or a judge. In the event of a separation this can be enforced and gives access to alimony.
  • AHV education credits: If a cohabiting partner takes care of the children and is not gainfully employed, they should either pay the minimum contribution every year to the AHV for persons not gainfully employed or apply for AHV education credits.
  • Occupational disability insurance: In case the principal earner suffers an accident or becomes occupationally disabled, occupational disability insurance ensures that the family's standard of living does not suffer and that even in old age they are not threatened with financial bottlenecks.
  • Pension fund: Not all, but some pension funds also pay benefits to the surviving cohabiting partner in the event of death. Here, it is important to clarify the respective conditions and to benefit one another. A cohabitation agreement is useful as evidence of the partnership.
  • Pension provision with Pillar 3: In the event of death, the life partner and the biological children are entitled to the savings capital of the deceased. This requires the name of the benefiting life partner to be documented in writing at the bank or insurance company. It is also recommended that the beneficiary is documented in a will. Under Pillar 3b, cohabiting partners can also protect themselves in the event of death: with life insurance. It is important that the insurer is informed in writing of the name of the beneficiary.
  • The will: It is advisable to draw up a will in which not just the biological children but also the life partner are taken into account. Nevertheless, only a small part of the assets can be freely bequeathed as the biological children always receive a fixed mandatory portion.

The single-parent family

A parent alone with the child from birth, separated, divorced, or widowed with a biological, adopted, step- or foster child: Single-parent families come about in various ways. In Switzerland, some 14% of all family households with children are single-parent families. 

The legal situation of single parents

If the second parent is still alive and does not pose a risk for the child, the parents continue to share parental care. In most cases, one of the parents – usually the mother - has sole custody of the child and assumes all the tasks associated with its upbringing: earning money, running the household, childcare.

The legal protection depends on the marital status of the single-parent family. Are or were the parents married, was the child born to an unmarried couple, or is a parent deceased? Maintenance payments after the end of the partnership depend on the previous situation and correspond to individual arrangements – such as a cohabitation agreement.

What risks do single parents face?

Raising children alone is no easy matter. And it's even harder to be well-insured and save capital for old age – especially on the tight budget usually at the disposal of a single-parent family. Therefore, an above-average number of single parents are affected by pension gaps.

  • Pension gaps: It can be especially difficult for single parents to cope with the combined needs of earning money and carrying out their family duties. In many cases, they work less and suffer losses in income. They therefore pay less into the AHV and they are often not insured in a pension fund for a longer period of time. Moreover, they often lack sufficient funds to pay for additional savings contributions into Pillar 3.
  • Loss of earnings: How are living costs and/or the costs of education covered if the sole breadwinner cannot work? 

Protecting single parents

  • AHV education credits: In order to close gaps in single parents' pension provision,  education credits to the AHV are helpful. Until the child is 16 years old, the credits are due to the parent with chief responsibility for the child.
  • Maintenance payments: The single parent who lives with the child is supported by alimony payments from the second parent: pro rata maintenance for the child and compensation for the childcare. However, payment of the maintenance contributions depends on the alimony debtor's financial situation. If no alimony is paid, if payment is irregular, or if the payer thereby falls under the subsistence minimum, it is advisable to seek state alimony assistance.
  • Occupational disability insurance: Should the single parent suffer a loss of earnings, corresponding insurance ensures that the family does not have to face financial bottlenecks and safeguards the children's education.

The patchwork family

Patchwork families are often characterized by the complexity of their biological and personal relationships. Whether through separation, divorce or the death of a parent, at least one partner brings one or more children from a previous relationship into the new marriage or partnership. The birth of new, joint children can lead to the addition of further half-sibling relationships to this family constellation. 

The legal situation of patchwork families

As the name suggests: One patchwork family rarely resembles another. Each has its own history with, in most cases, a correspondingly complex legal situation. On the one hand, because children in a patchwork family usually have a mixture of biological and non-biological parents and siblings. But also because the parents may already have a family history involving such obligations. 

What risks do patchwork families face?

A stroke of fate can have serious consequences, especially if the life partners in a patchwork family are not married. Legal succession is based on the classic family with the result that non-biological children and life partners are left empty-handed following the death of a parent.

  • Illness: If a parent of a patchwork family becomes ill and can no longer work or take care of the children, the patchwork family faces a serious income gap.
  • Death: In the event of death, life partners and non-biological children of a patchwork family are left empty-handed because no AHV pension is provided. Only the biological children receive an AHV orphan's pension and are entitled to inherit if the mother or father dies.

Protecting the patchwork family

  • Adoption: Protection is easier if the new partners marry and mutually adopt the children from their previous partnerships. The latter then benefit from the same rights as the biological children. However, as patchwork families are more frequently created following divorce or separation than from the death of a parent, adoption should only be considered in exceptional cases.
  • The will: It is advisable to draw up a will in which not just the biological children but also the life partner and their children are taken into account. Nevertheless, only a small part of the assets can be freely bequeathed as the biological children always receive a fixed mandatory portion.
  • Occupational disability insurance: If a life partner suffers an accident or occupational disability, an insurance ensures that the patchwork family can maintain its existing standard of living. 
  • Life insurance: In addition to the will, life insurance is recommended to protect the patchwork family financially. It permits the self-determination of the beneficiaries in the event of death - and to what extent. 

The rainbow family

A family in which at least one parent considers themself to belong to the LGBT grouping is described as a rainbow family. The children in a same-sex partnership can originate from a previous heterosexual relationship, or have been born, adopted or fostered into a lesbian or gay life partnership.

The legal situation of rainbow families

If same-sex couples and children form a family, providing financial protection is challenging since both parents are only recognized in law if the biological child of a parent is adopted by the co-parent. There is no parental care without a parent-child relationship, which means that the co-parent has neither rights nor obligations. In the event of a separation or the death of the biological parent, custody is not transferred to the co-parent without a stepchild adoption – in a worst case scenario, the child will either be taken away or placed with a third party. 

What risks do rainbow families face?

Inheritance law and the social insurance system are geared toward traditional families. Only registered partners, biological children and adopted children have a legal claim to the inheritance and to a survivor's pension from the AHV, mandatory accident insurance, and the pension fund of the deceased.

  • Death: If a co-partner of a rainbow family dies, the children have no inheritance rights without adoption and no entitlement to a child's or orphan's pension. 
  • Separation: If the life partners separate, an unadopted child has no relationship to the co-partner and their family, and the co-partner has no visiting rights or maintenance obligations.

Protecting the rainbow family

  • Registering the partnership: By registering the partnership at the civil registry, the partners are obligated to support one another, gain mutual pension rights, and are entitled to the mandatory portion of an inheritance. In addition, they may adopt a stepchild. 
  • Stepchild adoption: If the second biological parent is unknown, deceased or agrees to the transfer of their rights and obligations, a partner can adopt their partner's child. Stepchild adoption simplifies the legal situation of the rainbow family. 
  • Pension fund: Under certain conditions, some pension funds voluntarily pay a pension to surviving registered life partners, stepchildren and foster children. Here, it is important to clarify the respective conditions and to benefit one another. 
  • Pillar 3: In the event of death, the registered life partner and the biological children are entitled to the savings capital of the deceased. This requires the name of the benefiting life partner to be documented in writing at the bank or insurance company. It is also recommended that the beneficiary is documented in a will. Under Pillar 3b, the registered life partner can also be protected in the event of death: with life insurance. It is important that the insurer is informed in writing of the name of the beneficiary.
  • The will: It is advisable to draw up a will in which not just the biological children but also the registered life partner and their children, if any, are taken into account. However, since biological children always receive a fixed mandatory part of an inheritance, only a small part of the assets can be bequeathed freely.
  • Occupational disability insurance: If a life partner suffers an accident or occupational disability, an insurance ensures that the rainbow family can maintain its existing standard of living. 
  • Life insurance: In order to protect the rainbow family financially, life insurance in addition to the will makes good sense. It permits the self-determination of the beneficiaries in the event of death - and to what extent. 

Always there for you

Do you have any questions, or would you like a pension consultation? We are always there for you!

Frequently asked questions

  • What's the right way to protect my spouse in the event of my death?

    If you die, your spouse receives benefits from Pillars 1 and 2. However, this is often less than the actual income requirement – especially if you have joint financial obligations. You can fill this pension gap using preventive measures such as taking out life insurance or whole life insurance. 

  • How can I protect my cohabiting partner in the event of my death?

    Unmarried couples have no mutual legal inheritance entitlement if a partner dies. Individual pension solutions such as a cohabitation agreement or a will ensure that the life partner can inherit. In addition, it is advisable that the life partner informs their own pension fund and benefits their partner with their retirement savings under Pillars 3a and 3b.

  • What's the right way to protect my children in the event of my death?

    If the children are still minors or still in education, the AHV pays an orphan's pension if you die. In addition, in a legally valid will, you can distribute your estate and stipulate the guardianship rules in line with your wishes. A rule on how the inherited assets are to be managed should also be included in a will.

  • Who inherits my savings when I die?

    That depends on your marital status. If you are married or living in a registered partnership, the savings are distributed to your children and spouse according to the legal line of succession or the marriage contract.  If you are unmarried, any biological or adopted children receive the lion's share – the next heirs in accordance with the legal line of succession are your parents, your siblings and their children. An unmarried life partner must be mentioned explicitly via an individual provision ruling, otherwise they end up empty-handed. If you leave a will, the people listed therein are taken into account.

  • Am I entitled to my partner's savings on their death if we were living in concubinage?

    Generally, the following applies: All precautionary measures must be taken individually while you are both still alive and be specified in writing - i.e. in a cohabitation agreement - since no entitlements exist in law. It doesn't matter how long you have lived together. 

  • What is the right way to protect residential property in the event of occupational disability?

    With occupational disability and/or term life insurance. The former is a sensible investment at the latest when you acquire your own property. It adds to the mandatory benefits paid by social insurance in the case of occupational disability for health reasons or disability, allowing you to continue to receive your usual income. Term life insurance is also suitable for financing residential property and mortgages in the event of occupational disability.

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