Financial consequences of the sabbatical: What does the time out mean for my pension?

Last update: 17.09.2024 08:34

Unwind, take a break, travel, chill out. 3 out of 4 Swiss employees dream of taking time out. But what are the financial consequences of a sabbatical?

In the first article in this series, we looked at how you can organize a sabbatical and what this means for your CV and job interview. The second part looks at the financial consequences of a sabbatical for your finances and insurance. In this part, we take a closer look at the financial consequences of a sabbatical for your pension provision. Specifically: what does a sabbatical mean for your pension?

The term sabbatical is derived from a Hebrew word. In Judaism, the Sabbath is the seventh day of the week. According to our weekly calendar, the Sabbath is Saturday. The Sabbath is a day of rest on which, according to the 10 Jewish commandments, no work may be done. This gave rise to the term “sabbatical” in the working world.

A sabbatical is a break from working life lasting several months, for whatever reason. Some want to use the break to travel and broaden their horizons. Others want to realize a childhood dream, have more time for their family or simply do something good for themselves when changing jobs. However, there is no legal entitlement to a sabbatical in Switzerland. Your employer therefore does not have to comply with your request, except perhaps if a collective employment contract has a sabbatical provision. How do you take your sabbatical anyway? Well, you can either arrange it with your boss at work. Or you can take a sabbatical when you change jobs.

Both a sabbatical in your job and a job change will have financial consequences for your finances, insurance and pension situation. It is best to deal with this beforehand

If you only have no income for a few months (regardless of whether you are on sabbatical from your job or changing jobs), a sabbatical will not have a major impact on your AHV pension. Simply put, your AHV pension is calculated on the basis of your contribution periods, your income subject to AHV contributions and your qualifying periods between the ages of 20 and 65.

Contribution periods are defined as the number of years for which earned income or credit periods are recorded in your AHV account. The average AHV earned income is an arithmetical figure based on the income reported to the AHV. Credit periods include periods spent looking after children or relatives in need of care.

If you do not receive a salary for a few months due to your sabbatical and therefore no AHV contributions are paid, your income subject to AHV will be reduced. However, this does not result in a contribution gap (so-called missing years) that leads to a reduction in pension. The rule of thumb is that one year of missing contributions reduces the maximum AHV pension by 2.3 % – for life. Based on the maximum AHV pension of CHF 2,450 per month(as at 1.1.2024), this is around CHF 56 less each month.

Depending on your income, the financial consequences of the sabbatical may not affect your AHV pension. This is because with an average AHV income of currently CHF 88,200 (as at 1.1.2024), you will reach the individual maximum AHV pension with a full contribution period. If your AHV income is regularly above this limit, you contribute to solidarity in the AHV system. However, this does not increase your AHV pension entitlement.

If you take a short sabbatical when you change jobs or take unpaid leave, you have usually already paid the minimum AHV contribution in the current year due to the AHV contributions on your earned income in the current year. If not, as a non-employed person you are obliged to pay the minimum annual AHV contribution yourself if your registered (or married) partner does not pay at least twice the minimum contribution. To do this, you must register with the AHV compensation fund in your canton. This will prevent you from missing years. You can still pay the contributions backwards for the last 5 years. This not only makes sense to avoid missing years, but is also a promising way to invest money safely.

Incidentally, if you travel abroad for a longer period during your sabbatical when you change jobs, this does not constitute foreign residence. For this reason, and as long as you have your documents in Switzerland, you are still subject to compulsory OASI even if you have no earned income.

In summary, this means the following for you: If your time out includes a change of year, make sure that AHV contributions are paid for each year. This can be a mix of contributions from one or two employers, from you (as a self-employed or non-employed person) or from your partner (in the form of double minimum contributions or parental credits).

Essentially, four factors determine how high your pension from the pension fund will be. One of these four factors is your retirement assets. Your savings process in the 2nd pillar begins from the age of 25. From then on, your employer deducts a portion from your salary each year as a savings contribution for your pension and makes a contribution of at least the same amount itself. How much you save for the 2nd pillar depends on your age. The so-called retirement credits, i.e. the contributions from you and your employer, increase with age from 7 % to up to 18 % in the 55+ age group.

So if you don’t receive any income during your sabbatical (whether at work or when changing jobs), neither your employer nor you will save for your retirement assets. The extent to which this affects your retirement assets and therefore your future pension fund pension depends on how long your sabbatical lasts and how old you are. Your age has two effects: if you are older at the time of your sabbatical, you will lose more retirement credits than a younger sabbatical participant, but younger sabbatical participants will lose the exponential effect of compound interest on their retirement credits.

If you take a sabbatical from your job without a salary, it depends on the regulations of your pension fund whether voluntary savings contributions are possible or even mandatory. By making voluntary contributions, you can avoid the negative financial consequences of the sabbatical resulting from a lack of contributions to your retirement assets. If no savings contributions are possible, you can make up for this at a later date by buying into the pension fund.
If you take your sabbatical when you change jobs, you will receive the vested benefits from the pension fund. Please note: you must inform the pension fund where it should transfer the money. It will continue to manage it for a maximum of six months. Otherwise it will transfer it to the BVG Substitute Occupational Benefit Institution after two years at the latest. You can then transfer it from there to your new employer’s pension fund.

The prerequisite for paying into pillar 3a is that you have an income subject to AHV contributions (as an employee or self-employed person) in the year of payment. Even if you have only worked part-time in a given year, you can still make full use of the maximum 3a amount for that year. This means that you can also make maximum private provisions with pillar 3a in the year of your sabbatical. In this way, you avoid the financial consequences of your sabbatical on your pillar 3a. Please note: If you have your pillar 3a with an insurance company, you are normally obliged to pay in the contributions every year. Take this into account in your budget. In most cases, a pillar 3a with securities is recommended, as this gives you much more flexibility than an insurance solution. You can find everything you need to know about pillar 3 in this series of articles.

Taking a sabbatical is a dream of many. However, there is no legal entitlement to this in Switzerland. That’s why you can either agree a sabbatical with your employer at work or plan a sabbatical yourself when you change jobs. The financial consequences of a sabbatical for AHV are small as long as you avoid years of absence. In the pension fund, you will miss out on savings contributions for your retirement assets if you do not pay in yourself or make up for this later by buying into the pension fund. In pillar 3a, there are no financial consequences of the sabbatical on your pension provision if you do not change your private 3a pension routine.

Now you know what financial consequences a sabbatical will have on your pension. Now we’ve covered one detail of your retirement provision. But do you know the big picture? Do you have an idea of how much you will receive in retirement?

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