Updated: Mar 4, 2021
After my divorce, I put serious thought about my future. Although I was the primary earner in the relationship, I hadn’t put away enough money for my future. Plus, a good chunk of it I was transferred to my ex (as he made considerably less than me at the time). To compensate for this, I started looking into how to maximize my pension planning.
In Switzerland, the pension scheme (known as the three pillars) is set up as follows: the first and second pillars cover about 60% to 70% of one’s income. The 3rd pillar is intended to close the gap and helps one enjoy the accustomed standard of living after retirement. The third pillar is voluntary and provides for tax-qualified provisions.
For women working part-time, at multiple low-income jobs or not at all, the first and second pillars may hardly cover their pensions at all. According to the Gender Pension Gap study, published in July 2016 by the Federal Social Insurance Office, women’s pensions in Switzerland were 37% less than men, just below the European average. This is the equivalent to CHF20,000 less a year.
The first pillar covers the AHV (old-age, survivors’ and invalidity insurance scheme), the second pillar includes the occupational pension plan and the third includes tax-privileged private savings.
The deficit experienced by Swiss-based women stems largely from the second pillar. The second pillar directly reflects the amount worked and how much was paid in during the working life and penalizes anyone who works part-time or not at all due to care-giving duties or other reasons. In addition, it is impossible to increase one’s work percentage later on in order to fill in the existing gap.
Further, women generally retire earlier and yet live longer and may not be able to rely on their partner’s or spouse’s pension. Even as a working woman, Credit Suisse estimates that a woman would have to set aside about 38% of her income as retirement capital in order to have an adequate retirement provision. Unfortunately, many of us may not achieve this high savings rate consistently over decades.
For married couples, on average, women and men receive a similarly high state pension. This is due partly due to splitting: to calculate a pension, the incomes of both members of a married couple are combined, with both partners credited with half each. In addition, child-rearing credits – notional income during the years when children are dependent on care – are granted. Together, that means any gender differences during partners’ periods of unemployment mostly balance out. However, for single women, the picture is different.
Avenir Suisse makes additional points with respect to 3rd pillar: today’s gender pension gap reflects the lifestyles of women and men who entered working life in the 1960s and 1970s, and says little about the situation of future female pensioners. Traditional role models were widespread at that time, and far fewer women had conventional jobs than today. This clear division of responsibilities had a particular impact on the gender pension gap in the second pillar.
In recent decades, the pension system has undergone various adjustments to narrow the gender pension gap. One example is the introduction of pension equalization in the second pillar: in case of a divorce, for example, pension entitlements in the pension fund are balanced out between the two partners, primarily benefitting women who were hardly or not at all employed during the marriage (similar to splitting in state pensions). Thus, the pension gap between the sexes will continue to narrow in future even without additional measures.
Despite this, in figures from 2017, the most recent available, the median pensions were CHF2301 for men and CHF1221 for women. These women are among the best off among female retirees. The Federal Council also estimates that one third of women do not receive a pension at all. For women, it is clearly not enough to rely on the first and second pillars.
This is where the 3rd pillar could help women improve their chances for a solid retirement. Only one in two working women regularly invest in the third pillar, while the corresponding rate for men is almost 60 percent, according to a Credit Suisse study. Opening a 3a pillar with your bank or Selma or VIAC, is an easy way to get started on saving for one’s future.
In upcoming posts, we’ll dive deeper into the types of third pillars, as well as the benefits and disadvantages of having one (or more).
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