Retirement and pension planningUnderstanding the Swiss pension system

How much money does a pensioner need in Switzerland: having enough to make ends meet in retirement

Lesedauer 5 Minuten

How much money a pensioner needs in Switzerland varies from person to person. What you can assume, however, is that as a retired person you will have much less than today without your own precautionary measures. And around 40% less income that you have to get by with. How does this loss of income come about and how can you compensate for it?

A replacement rate of 60% is the benefit target of the first and second pillars

The Swiss pension system consists of two mandatory and one voluntary pillar. The first pillar ( AHV , old-age and survivors’ insurance) and the second pillar ( BVG , law on occupational pensions) should ensure you an income of around 60% of your gross income after retirement – i.e. 40% less than you have now. However , this only applies under certain conditions . Some of the most important are: you will retire “properly” (men at 65, women at 64) and since the age of 20 you have always paid in at least as much as the average of everyone else. Do you have? After all. Because according to Federal Office for statistics around 40 percent of the labor force retires before the normal retirement age – voluntarily or involuntarily. And bear the corresponding lifelong pension losses in the first and second pillars.

How much money does a pensioner need in Switzerland? The third pillar brings it

If you do not act yourself, you will receive the state-regulated benefits (AHV, BVG) as retirement income after your retirement. That much and no more. So that this does not have to be the case, there is a third pillar in Switzerland. It is intended to enable Mr. and Mrs. Swiss to reduce or close pension gaps.

According to a study at the Zurich University of Applied Sciences, however, only around 60% of German-speaking Swiss take care of their third pillar. This is consistent with studies such as the representative one Pension monitor from UBS. As a result, only slightly more than half of the Swiss workforce has a pillar 3a account. Do you belong too?

This is what your income mix should look like in old age

Your retirement income should come from three pillars and additional free assets. Based on Swiss averages, your retirement income could look like this. The best thing to do is use your numbers in our free pension calculator to work out what it looks like for you in 1 minute.

How much money does a pensioner need in Switzerland

How much money does a pensioner need: The basics of Swiss old-age provision

1st pillar: the pay-as-you-go compulsory insurance for everyone

Pay-as-you-go means that the contributions of some (employed payers) are immediately distributed to others (pensioners). The AHV keeps a so-called individual account for you at the various compensation offices. This collects information needed to calculate your future OASI pension. But it is not an asset account with real values. The AHV is a basic security that is intended to secure your livelihood and prevent poverty in old age .

2nd pillar: funded insurance for employed people

Funded means that your contributions as a payer are credited to your individual account with your pension fund. You can compare this to a blocked account at a financial institution that you don’t access until you retire. The “financial institution” is usually your pension fund, which manages and increases your assets. These assets are yours and should allow you to cover your living expenses after retirement.

3rd pillar: voluntary and private provision

Voluntary means you can, or rather should, but you don’t have to put something aside privately. There is pillar 3a, where you can really save on taxes , and pillar 3b to build up additional assets. As with the second pillar, you have one or more individual accounts. Like the second pillar, these are funded – you pay into your account. In the case of pillar 3a, the money is generally blocked until you retire. This is called “bound self-provision”. Before that, there are precisely defined cases in which you can withdraw the tied 3a funds again: if you become self-employed, emigrate from Switzerland, need the funds for a property you use yourself or want to buy into your pension fund. In order to motivate you to save money, Pillar 3a is heavily tax-deductible. Your assets in the third pillar (tied pension provision pillar 3a and the so-called untied pension provision, i.e. your free assets in pillar 3b) should supplement the first and second pillars. This is how you reduce or close pension gaps from the first and second pillars.

Our tip: investing in ETFs for everyone in Pillar 3b with just a few clicks

It is advisable to use passive investment products such as Exchange Traded Funds (ETFs) in Pillar 3b. Why? They pay much better in the long run. You can choose such products yourself and buy them for your securities account or choose a provider who will put them together and manage them according to your specifications. We find findpendent’s simple investing app useful for this .

What can you do now to make a living?

Well, you can take the hard way and set your retirement budget right now. This is highly recommended. In this way, you can determine exactly whether the retirement income from AHV and the pension fund is sufficient. Or you use the rule of thumb that you need around 80% of your last gross income as income even in retirement in order to maintain the standard of living you are used to in old age.

20 percent are often superfluous, for example because direct work-related expenses and travel costs are eliminated. In addition, interest payments on the condo or house mortgage are eliminated or reduced because the second mortgage has been amortized. And the savings phase for private provision ends. There are often no longer any expenses to support children with their training or studies because they are now able to stand on their own two feet. On the other hand, there can also be expenses, for example because you have more time for a hobby or finally want to realize your travel dreams or simply need money for medical treatment. The bottom line is that experts assume that you will need less money in old age than in working life – hence the 80% rule of thumb.

Summary “How much money does a pensioner need in Switzerland”

The first pillar offers basic security. Together with the pension from the second pillar, it is intended to enable those insured to continue their usual standard of living. Together they are aiming for a replacement rate of around 60% of the BVG upper limit . Unfortunately, if you earn more, you also get less than the 60%. Experts assume that as a pensioner you need 80% of your last gross income. That’s why you have to build up a sufficiently large cushion yourself with the third pillar.

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Thomas verfügt über mehr als 30 Jahre Expertise als Privatanleger in fast allen Anlageklassen und zwei Vorsorgesystemen. Er gestaltet seit vielen Jahren einfache Kunden- und Serviceerlebnisse, bewegt Menschen und Organisationen und hat ein tiefes Verständnis für die Herausforderungen von Menschen bei Finanzthemen gewonnen. Thomas bringt mit seinem Background als Doktor in Wirtschaftswissenschaften Themen einfach und pragmatisch auf den Punkt.
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