For most students, money is usually in short supply. Accommodation, food, public transport subscriptions and smartphones all come at a cost. And when there’s money left over, students save for their next holiday or to buy their first car. Barely a thought is given to the distant future or life in old age. Retirement is too far off and finances are far too tight. But this is exactly when students should lay the groundwork for healthy retirement planning, because those who act now will have more to live on later.
Retirement planning for students: saving in pillar 3a
Retirement planning is not just about your pension. It’s about financing big dreams, like self-employment or home ownership. People who get to grips early with retirement provision prevent gaps and make smart savings for their personal goals.
Watch out for gaps in retirement provision
Admittedly, it’s no easy task navigating the complex Swiss retirement planning system with its three pillars. We explain the most important factors for students here:
AHV (old-age and surviving dependants insurance)
- From 1 January after their 17th birthday, working people pay AHV contributions
- For those not in employment, the obligation to pay AHV contributions applies from 1 January after their 20th birthday.
- Working people who are liable for AHV contributions have mandatory insurance in the pension fund when they earn a minimum of CHF 22,050 (as of 2023)
- Until the age of 25, insurance only covers the risks of death and disability
If payments are not made towards AHV despite it being mandatory, this can cause problems in old age. Each year without AHV contributions will reduce your pension. Missing contributions can only be paid in arrears if they were less than five years ago. However, gaps in the pension fund can be closed later by making a voluntary purchase. This means it’s not serious if many students are not insured in a pension fund because of their low income.
If students become unable to work in the long term because of an accident or illness, they can also claim a disability pension. Accident insurance provides additional benefits in the case of an accident. But take care: if you are employed by the same employer for less than eight hours per week, you are only insured against occupational accidents and illnesses, not against non-occupational accidents.
Nevertheless, the disability pension is usually too little to cover all expenses because of the low income. Private retirement planning, e.g. insurance against incapacity to work or private accident insurance in addition to health insurance, is therefore essential in the event of disability.
Start saving young in the 3rd pillar
Taken together after retirement, pensions from AHV and the pension fund amount to an average of around 60% of the most recent income before retirement, which is too little to maintain the standard of living you’ve become used to. This is where the third pillar comes into play, and where you can put money aside voluntarily for later use. The following rules apply here:
- Everyone with an income liable for AHV contributions can pay in to pillar 3a. Many students with a part-time job reach this threshold.
- The annual amount that can be paid in is capped at a maximum of CHF 7,056 for working people with a pension fund (as of 2023) and 20% of the net income or a maximum of CHF 35,280 for working people without a pension fund (as of 2023).
- The following rules apply here: everyone with an income liable for AHV contributions can pay into pillar 3a. Both solutions offer the opportunity to invest in a fund.
It’s well worth starting to save in the third pillar when you are still young. This is because the interest or returns generated here remain in pillar 3a and are reinvested so the capital grows almost of its own accord. The longer the money remains in the third pillar – i.e. the earlier you begin paying in – the more you’ll benefit from this interest effect. Students who don’t fulfil the preconditions for paying into pillar 3a can save in pillar 3b instead. Find out the differences between pillar 3a and pillar 3b in this article.
Investing in pillar 3a
Interest on accounts is currently at a record low. With a retirement fund, students have the opportunity to get involved in the trends of financial markets and potentially have the chance for a higher return. There are retirement funds with different equity components for different risk requirements. Savings can be made using a funds saving plan or a standing order. With a funds saving plan, regular contributions are invested from existing assets. With standing orders, payments into the 3a retirement savings account are invested automatically in the selected retirement fund.
Saving with pillar 3a for home ownership or self-employment
Pillar 3a can be used both for building up capital over the long term and also for saving on taxes. This is because payments into pillar 3a can be deducted from taxable income. These payments are taxed when they are made, but at a reduced tax rate and separately from other income.
Basically, money in pillar 3a is intended for retirement and can be withdrawn a maximum of five years before the usual AHV retirement age. But there are exceptions. For example, people who move abroad permanently, become self-employed or buy their own home can have the money they have saved paid out. For this reason, pillar 3a is not only about saving for old age but also for fulfilling wishes before retirement.
So instead of immediately spending every hard-earned franc, it’s good for students to keep an eye on retirement planning. At the very least, you should make the minimum AHV payments. It’s also well worth making use of the opportunities offered by the third pillar. Even CHF 50 per month is a good place to start.
Find out everything you need to know in our comprehensive guide to retirement planning.