Financial security at retirement after a career: what to do?
For many people, retirement is a distant prospect. However, it's important to start thinking about it at an early age to ensure greater financial stability at retirement. Which measures are available to guarantee financial security at retirement? How can you enjoy retirement with peace of mind?
Under the 1st pillar, each missing year of contributions has a significant impact on the amount of the pension at retirement. It actually results in a decrease of the pension amount of around 2.3% regardless of the contributions paid in the other years. It is therefore recommended to start paying AHV (old-age and survivors’s insurance) contributions from the age of 21 at the latest in order to avoid such a reduction. Moreover, gaps in contributions can be paid up to a maximum of five years after a missing year of contribution. It is therefore advisable to ensure that contributions are paid continuously and to check the amount in your individual account with the AHV every five years.
As far as the 2nd pillar is concerned, events such as part-time work, divorce, withdrawals for home ownership or breaks from work have a major impact on retirement pensions. In fact, the pension amount at retirement depends strongly on the amount withdrawn and the average rate of employment throughout the professional career, among other factors. One way of mitigating the impacts of such events would be to make voluntary purchases (details on this can be found in the pension fund regulations). Such purchases offer tax advantages and, in general, provide a higher level of pension at retirement. Additionally, some pension funds allow their members to choose the scale of their savings contributions hence increasing their retirement savings and their pension amount thanks to the effect of compound interest.
It is worth mentioning that it is even more important nowadays to consider the option of making voluntary purchases within the pension fund, because even after a long and full career, the recent reductions in conversion rates and the low average returns on individual pension accounts over the last 10 years have naturally crushed hopes of a secure retirement.
Finally, it is advisable for employees to attend information sessions organised by their employer to stay up to date regarding the benefits and the conditions of entitlement of their pension plan and this in order to avoid pension gaps. For example, it is important to note that, in the event of death, there are no survivors' benefits for partners living under the same roof, unless mentioned in the pension plan rules. In such a case, the insured member may have to declare his or her life partner prior to death by filling a form provided by the pension fund, if they had been living together for at least five years in the year preceding this event. There are other special cases, for example, employees over 58 years old who have halved their salary at most. The pension fund may offer to maintain their pension at the level of their last insured salary. However, the cost of this is usually at the employee expense entirely (unless otherwise stipulated in the pension fund regulations). A final example concerns people arriving in Switzerland from abroad, for whom purchases into the pension fund are possible but remain limited to 20% of the insured salary for the first 5 years following their arrival in Switzerland.
In conclusion, it is important to remain informed about the various agreements put in place by pension funds to guarantee financial security at retirement and to avoid any gaps in the pension provision. Also, it can be interesting to follow the discussion on the reform of the 2nd pillar, which will be voted later this year by the Swiss population.
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WTW’s Pension Index decreased by 0.5% during Q3/2023.
