Career breaks: What do they mean for pension provision?

In general, the following applies: The Swiss three-pillar retirement provision system is designed for people who work their entire working life in permanent employment and pay into the 1st and 2nd pillars every year. This is why career breaks often lead to pension shortfalls, and not only in the AHV/IV system, but also in occupational retirement provision.

The gap grows with every year in which no money is paid in. This influences the amount of the pension and probably also the amount of the risk benefits in the event of death or disability. Those who are not employed often only have minimal risk coverage in the event of death or disability through the 1st pillar. Additional protection against these risks via the 3rd pillar is therefore often advisable.

A sabbatical is unpaid leave agreed with the employer. It usually lasts between one and twelve months, and the employment relationship continues. During this time, the pension fund is usually carried on too – either with risk benefits only or with savings benefits as before. In both cases, the employee must pay the contributions after their return, including the employer's share.

If the savings benefits are suspended, this will probably result in a pension shortfall – and "purchase potential" in the pension fund. This means that missing savings contributions can be paid later in a targeted and tax-efficient manner.

In the case of absences of up to six months, the employer's accident insurance can be continued via "insurance by special agreement" – with exactly the same benefits. If this is not possible or if the absence lasts longer than six months, the person on sabbatical must insure their accident risk privately via their health insurance.

If a person who has previously paid into the 2nd pillar becomes unemployed, their previously saved retirement assets must be transferred to a vested benefits account or a vested benefits custody account. As soon as a new job is found, the assets must be paid into the new pension fund, where they serve as the basis for future retirement provision. The employer is obliged to inform persons leaving the company about this rule.

According to the Federal Statistical Office, four out of five unemployed people look for a job for a maximum of twelve months. For them, their pension shortfalls are correspondingly small. The situation is different for the minority of unemployed people who are unable to find a new job for more than a year. It is particularly important for them to choose a vested benefits institution where they can invest their existing retirement assets in the best possible way. Although an investment portfolio is subject to greater fluctuations than a vested benefits account, it offers the opportunity of noticeably higher returns.

Anyone who temporarily or permanently retires from working life, for example for family reasons, must also transfer the retirement assets they have saved to date to a vested benefits institution.

If they return to work, the vested benefits are transferred to the new pension fund in order to continue building up retirement assets. If the break is only brief and the new job is already known, the person can also transfer their retirement assets directly to their new employer's pension fund.

If the break lasts longer than four weeks or the person subsequently works less than eight hours per week, they must include the accident risk in their health insurance policy.