Married couples are in a worse position than unmarried ones when it comes to tax and OASI pensions, but they receive better benefits if one of the partners dies. AXA-ARAG Legal Protection Insurance is seeing an increase in queries about this subject.
AXA-ARAG Legal Protection Insurance saw a 15 percent increase in queries about the subject of partnerships compared to the previous year. "We've noticed that the subject is more topical than before. We're often asked whether it's worth it financially to get married", says Tamara Bozinovic-Brons, a lawyer for AXA-ARAG. Customers are aware mostly of the "marriage tax penalty", i.e. the fact that married couples often pay higher taxes than unmarried ones due to tax progression. "However", she continues, "marriage also has other differences with financial consequences that are not often discussed."
Cohabiting couples are in a better position than married ones, not only in terms of tax, but also when it comes to OASI after retirement. Unmarried couples are entitled to the maximum OASI pension of up to CHF 29,400 per person, which means that they jointly receive up to CHF 58,800 p.a. For married couples however, the total of both individual pensions cannot exceed 150 percent of the maximum pension for single people. Getting married therefore reduces the maximum annual OASI pension to CHF 44,100, meaning that married couples lose out by up to CHF 14,700 p.a.
"Although unmarried couples may benefit each other through a will, it depends on the respective pension fund's regulations as to whether benefits can be drawn."
However, if a spouse dies, married couples are better protected by Pillars 1, 2 and 3. Pillar 1 (OASI) entitles the surviving spouse to survivors' benefits. Cohabiting couples are left empty-handed and cannot benefit each other in Pillar 1 through a will either. Pillar 2 (pension fund) entitles the surviving spouse to a survivors' pension or at least a settlement. "Although unmarried couples may benefit each other through a will, it depends on the respective pension fund's regulations as to whether benefits can be drawn", says Tamara Bozinovic-Brons. Being a beneficiary in this situation may also be linked to certain conditions, for example the partners must have been in a joint household for five years.
Pillar 3a also requires steps to be taken. A surviving spouse is always the first-named beneficiary, but for cohabiting couples, the money is normally divided between the surviving partner and heirs, provided that the deceased has not amended the order of beneficiaries. Furthermore, beneficiary arrangements under Pillar 3a must take account of statutory conditions, whereas under Pillar 3b, they can be freely chosen, subject to the compulsory portions.
"On balance, there is no clear answer to the question of which of the two ways of life has greater financial benefits. It's important to deal with the issue and be aware of the differences."
It also helps to be married when it comes to inheritance, as cohabiting couples have no statutory inheritance entitlement. In other words, unmarried couples must benefit each other in their wills, otherwise they'll be left with nothing. Here the statutory compulsory portions must be observed. While the situation on inheritance can be improved for unmarried couples by taking steps, there are still disadvantages when it comes to inheritance tax which cannot be changed through a will. In most cantons, cohabiting couples are actually subject to inheritance and gift tax, whereas married couples are essentially exempt. However, the tax burden differs from canton to canton.
"On balance, there is no clear answer to the question of which of the two ways of life has greater financial benefits. It's important to deal with the issue and be aware of the differences", says Tamara Bozinovic-Brons.
Regardless of the life form you ultimately opt for, it's important for you to know what your personal pension situation is and to protect each other in the cohabitation. Advantages and disadvantages - often love is also about gut instinct.
You can find more information about cohabitation in our blog article These laws apply to cohabitation.