Pension

Retirement provision tips for women

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Many years of caring for children or part-time work after pregnancy: Women are often disadvantaged regarding their pension from the AHV/OASI and occupational benefits versus men. Nevertheless, it is important that they do not get a raw deal when it comes to their retirement provision and protection. In this blog, we show how you can reduce income gaps and optimize your retirement provision.

It’s time to change the statistic.

Numbers never lie. And when it comes to retirement provision this year, the picture for women still looks bleak. More years of part-time work and lower income are reasons why women earn around one third less pension on average from Pillar 1 (AHV) and Pillar 2 (BVG) than men.

The lion’s share of this so-called pension-gender gap occurs in the occupational benefits insurance. There is also the fact that women usually also have less money, assets, or income personally and thus save less in Pillar 3. They simply lack the money.

However, many are aware of the impending retirement income gap: Around one third of women in Switzerland worry whether the money and assets they have will be enough to maintain their accustomed standard of living after they retire. This is confirmed by a representative survey we recently conducted among 1,000 people in Switzerland.

From full-time mom to part-time work

Regardless of whether a woman takes a longer break from working or chooses to work part-time after giving birth: Income gaps occur. With part-time work, you earn less – and payments into AHV/OASI and your pension fund are lower. As a result, you save less for your retirement and receive a smaller pension later.

What happens in the event of an accident or illness?

And speaking of occupational disability: Accidents can happen in the home or during your free time, and even a good immune system does not necessarily ward off every illness. In addition, occupational disability can be a burden on many levels and for the entire family.

Has the person who bears primary responsibility for care, work, and the household become unable to work from one day to the next? In such cases, the question arises regarding who will take over these tasks. If it affects the person who contributes the most to household income, then significant financial losses may occur. 

With over 850,000 registered accidents in 2019, there is statistically a ten percent chance that you could be affected by such an accident. This probability grows for a family of three or more. Here too, there are options for reducing financial risks. With adisability pension, you receive a pension in the event of disability. With supplementary health insurance, you receive contributions toward household help or for childcare during illness. And with term life insurance, you protect your loved ones should you die.

These types of additional coverage should always be adjusted to the income of your partner and your individual situation. It’s worthwhile to obtain personal advice. 

The crux of going back to work

Going back to work is associated with a lot of organizational effort: school and daycare schedules and availability, emergency contacts, backups in the case of illness and so on. Depending on the length of absence, ever-changing technical advancements on the job can become a real challenge. For men, too.

The digitalization trend in Switzerland is accelerating: Working worlds and processes are changing rapidly. If you neglect to keep up to speed, then you will have a lot to catch up on if you want to get digitally fit again. Taking a few years off to have a family can present a major obstacle to returning to the workplace.

Close gaps in your pension

As soon as you return to work, there is also more money in the household budget. A spa weekend with friends or a new couch are possible again. But as nice as it is to indulge yourself, it is especially important now to think about your personal retirement savings.

Obtain an overview of your previous payments to Pillars 1 and 2. If you have already saved in Pillar 3, this should of course also be included in your retirement capital. Find out where you are well positioned and where not. And create a plan for how you want to fill any possible gaps that have emerged.

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Pension fund or Pillar 3?

One option you have is to make additional payments into your pension fund. This way, you can fill any gaps that have emerged while you were taking care of your family.

Pillar 3a provides a further option. Employees with a pension fund can save 20 percent of their annual salary, up to a maximum of CHF 6,883 (as of 2022), and deduct the amount from taxes. With Pillar 3a, you also have the option of hedging against the financial risks of incapacity to work or death. For families, in particular, if one income ceases to exist, this can result in significant financial losses.

Another tip: You can still pay into Pillar 3 even if you do not work – in this case you would pay into Pillar 3b. 

What exactly is the coordination deduction?

The coordination deduction coordinates the pensions from Pillars 1 and 2 and ensures that individual social insurances within the Swiss 3-pillar system are coordinated with one another. In 2022, the deduction is CHF 25,095 and thus seven eighths of the maximum AHV pension.

In other words, it prevents you from over-insuring your salary for retirement. Because CHF 25,095 of your salary is already insured under Pillar 1. To make sure you do not insure this salary portion again under Pillar 2, the amount for the calculation of your contributions for the pension fund is deducted from your gross annual salary.

An example: With a gross annual salary of CHF 80,000, minus the coordination deduction of CHF 25,095, your insured income in Pillar 2 would be 54,905.

Optimize your retirement savings through the coordination deduction

Assuming you return to work at a workload of 60%, you should definitely try to optimize the coordination deduction. If the coordination deduction for an annual salary of CHF 80,000 (full-time work) is around one third, it would already be about half for a 60% workload.

The coordination deduction is a fixed amount deducted from the annual salary in order to determine the amount of insured salary. Pension fund contributions and pensions for old age, children, survivors and the disabled are based on the insured salary.
Part-time employees pay the same coordination deduction as full-time employees, unless the employer has defined a reduced coordination deduction for part-time employees in the pension fund rules.

Source: Own depiction

According to the current legal situation, the entire coordination deduction is always applied. However, a pension fund can take part-time work into account. If we stay with our 60% workload example and adjust the coordination deduction accordingly, the amount would be CHF 15,057, and thus about one third of your gross annual salary.

This means your insured salary is higher and you have paid significantly more money into the pension fund with a lower annual salary. The outcome is that you save more for retirement. The payment gap is not closed, but it also will not get bigger. Definitely use your next job interview for part-time employment as an opportunity to discuss the issue.

Accumulate even more: Invest for retirement

Even though the key interest rate recently increased somewhat: Anyone who keeps their private retirement savings in a traditional 3a account is currently receiving hardly any interest. You have significantly higher return potential by saving with an investment fund with a high equity weighting. Especially if you have a long investment horizon.

Andrea is 41, works on a 60% basis as a marketing specialist, and earns CHF 50,000 a year.
Regarding her retirement provision, she knows that she can save for around another 20 years. She plans to put aside CHF 500 every month. But what other options does she have?
With a savings account and 1% interest, she would have CHF 132,830 for her retirement after 20 years. With a 3a retirement savings solution, 4.2% return, and CHF 18,000 saved in taxes, she would have CHF 204,572.

Source: Own depiction

The earlier you start to invest, the better your return: For women who save 20 or more years before retirement, this can in some circumstances make a difference later on of up to CHF 70,000.

So as you can see, you do not need a lot of money to reduce pension gaps with a Pillar 3 solution that invests in securities. And time is on your side.

In short, having a family and saving for retirement are not mutually exclusive.

Taking time for your family and raising children is just as important as saving for your retirement. Use your options to save in a Pillar 3a solution and a pension fund to provide for your retirement and close any income gaps. Also check what impact a securities solution would have on your retirement savings – especially if you calculate with a longer investment horizon.

Another important topic: Stay fit digitally – even if you are not working for a longer period of time. Look into digital media in your free time and stay up to date. It will be easier for you to get back into the working world if you do. Discuss the coordination deduction at your next job interview. It will pay off for you and your retirement savings.

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