How do you prepare for retirement?
18 November 2024 | Comment(s) |
Adrien Jacquérioz
Although it is often not the primary concern of the Swiss population, retirement can be anticipated and prepared for. You don't have to wait until you're 50 before taking the initiative and planning for your new life after your working years. Start thinking about pension issues early enough to make the most of your retirement!
Your retirement benefits will depend on many factors, such as the length of time you have contributed, your professional income, your age when you retire and your family situation, but you can optimise your pension provision while still working. In this article, we give you the best advice on how to prepare for your future with peace of mind.
Understanding the Swiss pension system to plan your retirement
To prepare for retirement, you need to understand how the three-pillar system works. This is the very foundation of the Swiss pension system. Normally, it is anticipated that benefits under the 1st pillar (AVS/AHV) and the 2nd pillar (LPP/BVG) will cover 60% of final salary.
Key figure: 1 in 3 Swiss people has a pension gap.
- The 1st pillar comprises the benefits provided by old-age insurance (AVS/AHV - Old Age and Survivors' Insurance). This is a compulsory form of state provision, financed by working people to cover the basic needs of retired people. Recently, the Swiss people approved a 13th AVS/AHV pension to improve the standard of living of retired people.
- The 2nd pillar gives entitlement to occupational pension provision benefits (LPP/BVG). It includes contributions from employees and their employers, as well as interest accrued within the pension fund. The 2nd pillar makes it possible to supplement the benefits of the 1st pillar to around 60% of final income. Self-employed persons who are voluntarily affiliated to a pension fund also receive benefits under the 2nd pillar.
- The 3rd pillar is made up of individual pension contributions and is used to make up for the shortfalls in the first two pillars in order to maintain your standard of living before retirement. It is an individual and optional savings scheme to supplement your income when you retire. Pillars 3a and 3b differ in a number of respects, particularly in terms of the relative tax advantages and the flexibility of withdrawing the capital amount saved.
1st pillar: covering vital needs in retirement
When you retire, the amount of your 1st pillar (AVS/AHV) benefits depends on a number of factors, such as the number of years you have contributed and your average annual income. To qualify for state old-age pension, you should apply to your compensation office at least three months before your normal retirement age, so that the insurance office can calculate your benefits. The maximum monthly AVS/AHV pension is CHF 2,450 per person or CHF 3,675 per couple for married people.
- Apply to your compensation fund for a retirement pension in good time to determine your benefits.
- The amount of your AVS/AHV pension depends in particular on the amount and duration of your contributions throughout your working life. With LPP/BVG benefits (2nd pillar), pensions will normally cover 60% of your final income.
2e pillar: guaranteeing an adequate retirement income
As an employee, you have contributed to the 2e pillar (LPP/BVG) with your employer throughout your working life (but also as a self-employed person if you are voluntarily affiliated to a pension fund). Together with the 1st pillar, LPP/BVG benefits help you to achieve an acceptable income when you retire.
You can withdraw your occupational pension assets from the age of 58, either in the form of a lifelong monthly pension, a one-off lump-sum payment or a combination of the two. However, you should always check with your pension fund regulations for the precise terms and conditions.
- Check the status of your LPP/BVG contributions by referring to your pension certificate each year.
- Find out whether your employer offers attractive LPP/BVG benefits. If possible, choose to make additional contributions.
- To fill gaps in your occupational pension provision, consider making tax-deductible purchases from the 2nd pillar.
- Make sure you have managed your vested benefits correctly when you change jobs, start self-employment or leave Switzerland permanently.
3rd pillar: filling pension gaps for retirement
Investing in a 3rd pillar allows you to supplement the benefits provided by the 1st and 2nd pillars for your retirement and improve your quality of life. You can choose between a 3a pillar (tied pension provision) or a 3b pillar (flexible pension provision).
The capital amount saved in a 3rd pillar is also, in most cases, guaranteed in the event of unexpected events such as death or disability, and can be invested so as to offer a return. To withdraw your 3rd pillar, you can apply to your private pension institution up to five years before you reach retirement age.
- Investing in a 3rd pillar (a or b) and saving regularly will improve your financial situation when you retire.
- The amount saved in a 3a pillar (maximum of CHF 7,056 per year and 20% of income, maximum CHF 35,280 for self-employed persons) is tax-deductible. Some cantons also allow tax deductions on the 3b pillar.
- Withdrawals from Pillar 3a are more limited than those from Pillar 3b (e.g. when you retire, buy your own home, start a self-employed business or leave Switzerland permanently).
Start thinking about retirement now!
In short, it's important to be aware of the specifics of pension and retirement provision and, above all, your entitlement to benefits. With the help of a budget plan, you can also estimate your expenses, income and needs:
- What are my expenses in terms of health, accommodation and other ordinary costs (food, vehicle, various insurances, telephone and internet subscriptions, etc.)?
- What is the monthly or annual amount needed to maintain an acceptable standard of living in retirement?
- What 1st, 2nd and 3rd pillar benefits can I receive? In what form and when can I receive them?
Peace of mind upon retirement thanks to Groupe Mutuel
By starting early and taking a proactive approach, you can ensure a worry-free retirement in Switzerland. At Groupe Mutuel, whether in private or occupational pension provision, we put all our expertise at work to meet the retirement needs of our insured persons, whatever their personal circumstances and needs.
We offer a complete range of individual pension products, from pure risk life insurance to invested and/or guaranteed savings, as well as a flexible and profitable solution such as VariaInvest. Our occupational pension solutions also offer attractive terms and efficient management of LPP/BVG 2nd pillar benefits and vested benefits accounts.
Our advice for your retirement:
- Start planning now for your retirement and the management of your occupational (2nd pillar) and private (3rd pillar) pension assets.
- As far as possible, diversify your investment portfolio to reduce risk.
- Spread withdrawals from your pension fund and 3rd pillar assets over several years. The larger the withdrawals, the higher the rate of tax you will have to pay.
