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Created on 01.10.2021

Retirement planning: the comprehensive 2021 guide

It’s something most people know already: retirement planning is important. It’s just how exactly to go about it that seems incredibly complicated. Our comprehensive retirement planning guide helps you reach your goal step-by-step and also provides useful tips and background information on the Swiss retirement system. In five parts, we answer questions like: how much money do I need to save up to enjoy financial peace of mind when I retire? Or what is the best way for me to go about investing my retirement assets based on my own requirements?

Part 1: The basics - How the Swiss retirement system works

It’s something most of us remember from our school days, or at least encountered when we received our very first payslip: Switzerland’s 3-pillar retirement system. But in day-to-day life, and especially when we’re young, we scarcely give retirement any thought as it just seems so far away. With that in mind, here’s a quick reminder of how the Swiss retirement system works exactly.

The Swiss retirement system

The Swiss retirement system is made up of 3 pillars: state, occupational and private pension plans. The 1st pillar, OASI (old-age and surviving dependants insurance), aims to provide a minimum income level when we’re older. The 2nd pillar, the occupational pension (OPA) component, is about ensuring we’re able to maintain the standard of living we’re used to. Both the 1st and 2nd pillars are required by law.

The optional 3rd pillar allows you to build up private retirement assets so you can maintain the standard of living you’re used to, but it also allows you to save on taxes and to insure yourself against risks such as death and incapacity to work. 

The Swiss retirement system is based on three pillars: state (1st pillar), occupational (2nd pillar) and private (3rd pillar) pension plans.

1st pillar: The state pension basics

The state pension, which provides old-age and surviving dependants insurance (OASI), guarantees a minimum income level for everyone living in Switzerland in old age and in the event of death. If pension contributions and income do not cover the minimum costs of living, supplementary savings can help. The first pillar does not just cover retirement provisions. It also includes:

  • invalidity insurance (IV)
  • supplementary benefits (EL)
  • unemployment insurance (ALV)
  • compensation for loss of earned income (EO) during military service, civil protection or maternity leave.

All persons in gainful employment who reside in Switzerland are liable to pay contributions from 1 January after their 17th birthday, and those who are not in gainful employment are liable to do so from 1 January after their 20th birthday in the year in which they turn 18. The OASI contribution percentage rate is 8.7%, and is split evenly between employer and employee. This means you contribute 4.35% of your monthly salary (as of 2021). The self-employed pay the OASI contribution themselves at a rate of 8.1% of their salary (as of 2021).

1st pillar: Being as well prepared as possible

Each month, your OASI pension will be between CHF 1,195 and CHF 2,390 (as of 2021) depending on how much you have earned in your lifetime. Part-time work and interruptions in earnings result in your pension being reduced for life. Look out for gaps in coverage: as a rule, men should pay OASI contributions for at least 44 years, and women for at least 43 years. Check your OASI statement on a regular basis and catch up on any missed payments. You can catch up on any gaps in payments up to 5 years after they emerge, otherwise you will see a reduction in your pension. You cannot supplement your old-age pension by paying more into pillar 1 than the statutory percentage. It is therefore essential you supplement your retirement provisions by also paying into a pension fund and taking out a private pension.

2nd pillar: Occupational pension – a little more than the bare minimum

Given that, by law, the contributions of the 1st pillar only amount to the costs of a minimum income level, there is a second compulsory pillar. The 2nd pillar consists of the following:

  • occupational pension (OPA), often called a pension fund,
  • and accident insurance (UVG).

Individuals subject to OASI contributions who earn a minimum annual income of CHF 21,510 (as of 2021) are also liable to pay into an occupational pension. Saving up for retirement under the statutory occupational pension scheme only begins at the age of 25; prior to this age, you are only insured against death and disability under the second pillar. If you are liable to pay into an occupational pension, your employer will insure you through a pension fund and will contribute at least half the statutory minimum amount. The other half is deducted from your salary. The self-employed are not subject to mandatory insurance, and are free to sign up to a pension fund. Anyone who doesn’t do this will need to make up for the missing 2nd pillar by paying into the 3rd pillar.

You will find a detailed guide about each component of the 2nd pillar and other useful information here: The link will open in a new window Pension fund – what you need to know.

2nd pillar: Useful pointers for a bigger pension

There are also elements in the 2nd pillar you need to bear in mind to get the most out of your pension:

  • the higher your salary, the higher your savings contributions. But you can improve your old-age pension in this area by making voluntary payments into a pension fund, or, to put it another way, purchasing additional pension benefits based on the options provided for by pension fund regulations.
  • Next time you change job, don’t just look at standard conditions such as salary, but also at the fringe benefits. Employers are entitled to contribute more than the statutory minimum in employee benefits.

Remember that when you change jobs, you must take your savings (known as “vested benefit contributions”) with you. If you have to give up your current employment temporarily or permanently and your subsequent job does not offer a pension fund, we provide the perfect solution in the form of our 2nd pillar vested benefits account: keep your assets safe.

3rd pillar: Financial security so you can carry on enjoying a decent standard of living when you’re older

Whilst the first two pillars are mandatory for everyone in gainful employment, the 3rd pillar is optional, but strongly recommended. The 3rd pillar covers private pension plans, which you can tailor based on your own needs, desires and financial capacity. As such, the 3rd pillar offers fixed pension plan (3a) solutions and flexible pension plan (3b) options.

The 3rd pillar, i.e. fixed pension plans, is, as the name suggests, earmarked for financing in old age, which also explains why it enjoys tax benefits from the state. Your money will eventually be paid out to you when you retire, although statutory exceptions do allow you to withdraw this money before you reach retirement age under certain circumstances.

The flexible pension scheme covered by pillar 3b allows you to invest money on a flexible basis, and you have your very own retirement plan. Pillar 3b covers the following: savings, bank accounts, life insurance, bonds, money market investments, shares, securities funds, property and many other options. However, depending on what you choose, different rules and conditions will apply. This is why it is a good idea to do plenty of research before you start focusing on saving up under pillar 3b.

An ageing population: the pension system is under pressure

We are currently seeing two social developments unfold that are relevant to our pension system:

  • the life expectancy of the Swiss population is increasing, which is why OASI and pension funds have to pay out for longer.
  • Over the course of the next few years, more people than average will be retiring.

These points are critical if we examine the pay-as-you-go system under the first pillar more carefully. The state pension financing process involves direct contributions from those in gainful employment whilst those in retirement receive payment. So if the proportions of these two population groups change, the system is in trouble. If you have a large number of people in gainful employment financing the pensions of a small number of pensioners through OASI contributions, the system is secure. However, the population shift we are seeing has changed things: when OASI was introduced, you had 6.6 people in gainful employment financing every pensioner, whereas now, this figure has fallen to 3.4.

OASI is currently seeing a funding shortage and only covers 80% of pensions, with the other 20% being covered by the Confederation’s OASI fund. As the state pension system comes under increasing pressure, private pensions are becoming more and more important.

Part 2: Why retirement planning is so important

The Swiss retirement system with its three pillars is not something that is immediately clear to everyone. What do the three interconnected pillars actually represent? Why does the third pillar distinguish between 3a and 3b? And how and when should you start retirement planning in the first place? Retirement planning seems to be too complicated for many people.

Our comprehensive guide provides you with the necessary overview on the following areas:

  • What the three pillars of the Swiss retirement system actually mean
  • When and how you can start retirement planning
  • How you can best prepare for retirement based on your own personal circumstances
  • Useful pointers to help you get the most out of your retirement provisions.

But let’s start by providing some motivation by answering the question: why exactly is retirement planning so important?

The only way you can guarantee yourself a decent standard of living is through comprehensive retirement planning.

Anyone wishing to enjoy financial security in their old age should really start thinking about retirement planning as early as possible. If you want to carry on enjoying the same standard of living you’re used to, i.e. where you can fulfil your own needs, desires and goals, you are going to need the money to do so. Here’s why: the first pillar, according to the guide, helps secure a minimum income level, while the second pillar allows you to carry on enjoying the standard of living you’re used to. What this means is that once you retire and receive your statutory minimum benefits, the total pension you receive will in fact only amount to about 60% of your previous income. The trouble is that, for the vast majority of people, this is not enough in practice to carry on enjoying the same standard of living they had before they retired. And what makes things worse is the fact that the cost of living tends to increase in old age – take the price of care and increasing health insurance premiums for example.

Don’t trust the retirement system? Here’s why this argument doesn’t really stack up

Trust in the current retirement system is dwindling as it is coming under increasing pressure due to demographic change, and this is especially true of the 1st pillar. Younger people in particular frequently worry that they will not receive pensions from the 1st and 2nd pillar, that the OASI retirement age will have increased by the time they retire, or that the conversion rate of the 2nd pillar will be reduced. And it’s true: Switzerland does have an ageing population. We are seeing more and more people in retirement, and fewer and fewer young people in gainful employment who can prop up the system. But rather than just bury our heads in the sand and ignore this complex issue completely, what we really need to do is take action:

this is where the third pillar comes in, which is a form of retirement provision that supplements the contributions of the 1st and 2nd pillars and fills any gaps in coverage. What’s more, it’s something that everyone can manage themselves. These aren’t contributions that are funded using a pay-as-you-go system (as with the first pillar) or with a capital funding system (as with the second pillar): you can choose what you put towards the third pillar, and everyone can save up how ever much they want/can according to their own needs.

You can actually start reaping the rewards of retirement planning today.

Finally, we have some very good news: retirement planning isn’t something that will just pay off in the long term.

You can start benefiting right now by paying into the third pillar. You can decide how much you would like to contribute in payments (up to a statutory maximum annual sum of CHF 6,826 as of 2021) and thus deduct in tax. 

As you can see, the only way you can continue enjoying the same standard of living you’re used to is if you are able to generate enough income through these three retirement planning pillars. As a rule, the third pillar is an essential part of this process.

And just think how nice life could be! When you eventually do retire, you will finally have enough time to devote yourself to your hobbies, family and passions to the full.

This is why women are especially affected by gaps in pension coverage

Gaps in pension coverage: women are often hit especially hard. Even though women do ultimately have a higher life expectancy than men, they are often at a disadvantage as far as their pension is concerned.

Part-time jobs, parental leave and lower wages can result in women accumulating less in retirement assets than men. As more women reduce their working hours or have extended breaks from work than men, gaps can arise in their OASI (first pillar) coverage and their pension fund (second pillar). This results in them having less money they can access once they’ve retired.

This is why it is especially important for women to start thinking proactively about retirement planning as soon as possible. Read more in this article “Retirement planning for women: how to avoid shortfalls ​

Part 3: Your strongest asset – Private retirement planning 3a

With private retirement planning, especially pillar 3a, you can choose the solutions that best suit you, and you have the best chances of benefiting and getting the best out of your retirement plan. One reason pillar 3a is popular is the tax incentives available from the government.

How to save on tax and put money aside for retirement

Every franc up to a maximum sum of CHF 6,883 for individuals in gainful employment who are affiliated to a pension fund – or up to 20% of your annual income and a maximum sum of CHF 34,416 (as of 2021) for individuals without a pension fund – that is paid into pillar 3a over the course of the year can be deducted from your taxable income. Please bear in mind the following four tips to save on taxes with pillar 3a:

  • open several 3a accounts. The general rule is this: if you have retirements assets of over CHF 50,000, it is worth opening an additional 3a account. This will allow you to withdraw your credit balance in stages when you’re older, and you will still be able to reduce your tax-rate progression – see the regulations for your own canton of residence. Alternatively to opening a 3a account, you could also put your pension contributions towards 3a life insurance.
  • Married couples or cohabiting partners should not withdraw their pillar 3a assets in the same year. These are added together, which can also have a negative impact on your tax-rate progression.
  • The same is true of pension fund assets and pillar 3a assets: these are taxed jointly, which is why it’s a good idea to withdraw these assets in stages over the course of several years.
  • Every little helps. Even if you are unable or unwilling to contribute the maximum annual amount, the tax effect is still palpable with smaller amounts. Calculate how much tax you save by paying into pillar 3a using the PostFinance tax calculator.

You can find more detailed information and a sample calculation that tells you exactly what you save in tax by withdrawing your assets in stages in our article “Retirement savings 3a: save on taxes with these tips”.

Retirement planning and investing: it can be well worth combining in the long term

In addition to the tax incentives of pillar 3a, there are other ways you can get the most out of your retirement capital.

When you hear the words “private retirement planning 3a”, is the first thing you think of a classic 3a account solution or 3a life insurance? There are alternatives that will boost your chances of increasing your savings over the years.

With a 3a account, you have the option of paying interest on your contributions as a savings deposit, although interest rates have been low for quite some time now. Alternatively, in just a few steps you can invest the retirement capital from your 3a account into retirement funds so that you can benefit from the opportunities of the capital markets in the long term. Seeing as the investment horizon for retirement assets tends to be long-term, you could take more of a risk, which may well be rewarded with higher potential returns. Additionally, price fluctuations even out more over a longer period of time. Find out more about the differences between a retirement savings account and a retirement fund in our article “How to get more from your retirement planning”.

In the case of 3a life insurance, you can opt for the classic products with guaranteed benefits, or you can choose to invest in retirement funds here as well.

Are you aware of the benefits of a retirement fund, but still unsure which fund is best suited to your needs? A key USP is the equity component of a fund. Read more in our article “What is the right retirement fund for you? It is well worth comparing them!

Part 4: When to get started? And what should you do if you experience interruptions in earnings? Retirement planning and your current situation

It is well worth making an early start

There’s no time like the present: it is well worth making a start on your retirement planning early on. Want the proof? Let’s look at the following sample calculation:

imagine you pay the current maximum sum (as of 2021) of CHF 6,883 into your 3a private pension , which gives you 0.15% in interest on average. If you start paying this at the age of 30, you will already have assets worth CHF 265,788 (CHF 7,067 in interest alone) at the age of 65, so 35 years later.

That would be a very tidy sum of money for retirement, right? And all thanks to the compound interest effect. You can find out more in our article “The compound interest effect explained in simple terms”.

The earlier you start paying into pillar 3a, the better

As you can see, the earlier you start paying into pillar 3a, the better. Even if you have many other priorities when you’re younger and you can’t afford to pay in the maximum sum, smaller amounts are also worthwhile.

Essentially anyone in Switzerland can pay into pillar 3a if they have earnings that are subject to OASI . This rule also applies to young adults and students. If, for instance, a student doing a part-time job earns income that is subject to OASI, they can in fact start investing into a private pension under pillar 3a.

Time spent abroad and other gaps in employment: here’s what happens to your retirement planning

Around 11% of the Swiss population live abroad according to the Federal Department of Foreign Affairs, the majority of which reside in Europe. Whether you decide to move abroad for the long run or you’re just taking a few months out to travel around the world, it is important you don’t forget about your retirement planning. This is because anyone abroad will quickly run the risk of gaps in coverage emerging, which will mean a lower pension in old age.

The same applies here: it is a very good idea to bolster your private pension to make up for any losses in your OASI and OPA pension caused by a drop in inpayments.

Part 5: When it’s finally time – Early retirement, postponed retirement or regular retirement

Can I retire early?

You can retire at as early an age as 58, and enter a new stage of life sooner in the process. But early retirement is by no means easy seeing as you will have to fill in those gaps in income you would have otherwise earned right up until your pension is paid out.

You have these options:

  • Advanced withdrawal of your pension fund: check with your employer and your pension fund what the conditions for early retirement actually are. Some provide a supplementary pension up until you reach statutory OASI retirement age.
  • OASI withdrawal: you can withdraw your OASI early, but be aware your pension will be reduced for life.
  • Withdrawing your private pension under pillar 3a: you can withdraw your contributions into pillar 3a up to five years before you reach statutory retirement age.

As you can see, early retirement does come with huge drawbacks, which is why it’s important to plan it carefully. Find out more in our article “What do I need to bear in mind if I retire early?

How semi-retirement or postponing retirement works

Some people, on the other hand, want to stay in work for longer. As a matter of fact, you can postpone your retirement up to the age of 70. You could also consider semi-retirement, where you slowly and gradually retire from working life. If you are considering postponing your retirement, your best bet is to discuss the matter with your employer directly.

Goodbye working life – should I continue investing?

Once you’ve retired, it’s time to put your feet up What what happens to your capital?

Anyone who is no longer in gainful employment ought to invest their money differently to how they invested prior to retiring. The next stage after asset growth is asset depletion, which also needs to be planned. And if, for instance, you withdraw your pension fund assets all in one go, you will have a considerable sum that you could potentially invest.

The main thing you should concentrate on is securing your income so that you can enjoy a well-earned, worry-free retirement. We also recommend reading “Investing after retirement: what you need to bear in mind”.

You’ve done it! Now you’ve read our comprehensive retirement planning guide, you should be a veritable expert on retirement planning! Test your knowledge in our quiz “Beware half-truths! The biggest retirement myths debunked”. And of course: try to do as much as you possibly can to guarantee yourself a comfortable life when you finally retire.

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