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Created on 02.06.2021

Bye-bye AHV pension? COVID-19’s impact on personal retirement planning

Coronavirus and the measures imposed to tackle it affect many different facets of our lives – and their impact will remain with us for decades to come. The financial consequences of the coronavirus-related measures will also have an impact on retirement provision. We explain exactly how in this article.

The coronavirus pandemic and the measures imposed to tackle it have overshadowed 2020 and 2021. It is not just restrictions in their private lives and the impact on working practices that are causing concern for many Swiss people, but also the aftermath for the Swiss economy. The financial ramifications of the pandemic are set to have a long-term impact on the already beleaguered Swiss pension and social welfare systems.

Just how severely our economy and pension system have been hit by the pandemic will only begin to become apparent over the coming months. We’ve provided you with a summary of the key facts that are already evident about how COVID-19 will affect retirement provision. 

What’s the situation with my pension fund assets?

The crisis will not actively influence the pension fund contributions for people in employment. The full employee benefit contributions will also continue to be paid for people who have or will be affected by short-time working. The particular situation of the respective pension fund is the decisive factor for these people – they ultimately invest the funds of their policyholders which means they are dependent on the financial markets. In spring 2021, it seems as though the pension funds have recovered after a slump on the financial markets in 2020. 

The performance of the financial markets will determine whether or not the pension funds have to implement re-organizational measures. This could involve, for example, the levying of restructuring contributions from active employees and employers, employer inpayments or the reduction or cancellation of interest on mandatory or non-mandatory retirement assets. 

What if I’ve lost my job due to coronavirus?

People who have lost their jobs in the wake of the COVID-19 pandemic and are not in employment are still obliged to make AHV and DI contributions until the statutory retirement age. The first-pillar contributions are deducted directly from unemployment benefits. 

With the second pillar (employee benefits schemes), people who are unemployed have to leave their former employer’s pension fund. The pension fund assets accrued nevertheless remain part of retirement provision. They have to be transferred to a vested benefit policy or account. From the first daily allowance payment from the unemployment insurance fund, unemployed persons are covered by mandatory insurance via the Substitute Occupational Benefit Institution. This mandatory benefits coverage only includes the risks of death and invalidity. It does not cover retirement provision. Persons not in employment run the risk of pension gaps opening up. Unemployed persons can pay these contributions on a voluntary basis via the Substitute Occupational Benefit Institution if they are able to financially. 

You can The link will open in a new window read more on the Federal Social Insurance Office’s (FSIO) website about which measures the Federal Council has taken to cushion the financial impact of combating coronavirus for companies, employees and self-employed persons, particularly in the 1st and 2nd pillars.

Will pensions be cut?

Pensions in Switzerland – under both the state and occupational benefits systems (first and second pillar) – are enshrined and protected in law. This means pension reductions are not currently expected despite the pandemic. The first and second pillars have long been under pressure due to demographic change in the population, which requires reform of the pension institutions irrespective of coronavirus. 

What effect will higher unemployment have on AHV?

Higher unemployment as a result of the coronavirus crisis has put even greater pressure on the Swiss welfare institutions. They have to pay out higher benefits if unemployment rises. Higher unemployment usually means lower tax revenue: people who are not in employment, have lower income or have used up their assets pay less tax and do not consume as much which may lead to a decline in VAT revenue.

There is also evidence to indicate the pandemic is having an impact on Swiss people’s mental health. This concerns both people who have lost their job due to the pandemic or have had to close their company as well as people who have not suffered any financial disadvantages as a result of the measures. Fears over job security, the long period in isolation, the loss of family members or friends, but also the lack of prospects for young people, to name but a few reasons, may also have an adverse effect on mental health. The extent to which the psychological impact will be reflected in the first pillar, particularly in disability insurance, is currently still unclear. The Swiss healthcare system – especially the health insurance providers – look set to be put under greater strain in the long-term, not just due to cases of coronavirus, but also long COVID and the psychological effects of the measures imposed to tackle the pandemic. 

What does the coronavirus pandemic mean for my 3rd pillar?

You can continue using your third pillar despite the pandemic. But here too the situation on the financial markets is also affecting interest and yields. You can continue to benefit from tax savings in 2021 by paying into pillar 3a, no matter whether you pay in the maximum amount or just what’s in line with your current budget.

Irrespective of the ramifications of coronavirus on the first and second pillars, it’s well worth reviewing your personal retirement planning situation and closing any gaps with third-pillar solutions. It’s advisable to decide whether to opt for the flexible retirement savings account (pillar 3b) or the fixed pension plan (pillar 3a) for your retirement planning based on your personal situation. The differences between the two pillars are explained in the article “Differences between pillar 3a and pillar 3b.”

Take this opportunity to assess your personal pension situation and to ensure you are secure and well positioned for the future. Retirement planning is not just about making provisions for old age – it also involves covering the financial implications of the risks of disability and death due to illness or accident. Find out which benefits you could obtain in the event of (partial) disability and how your family members are covered in the event of death and take the steps needed to close any pension gaps. This may mean purchasing additional pension benefits or taking out a life insurance policy. Our retirement planning expert provides invaluable advice in the video “The path to retirement.” 

There are lots of unanswered questions which makes private retirement planning all the more important.

It’s currently still difficult to tell how severely the coronavirus-related financial measures will impact on retirement provision. What you can do to ensure you are better protected is optimize your personal retirement planning situation and close any gaps – provided this is financially viable. What long-term impact the pandemic and the related measures will have on retirement planning and the Swiss healthcare system will only become apparent over the months and years ahead.

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