Pension Shortfalls with Employees? Get Active!

The Swiss 3-pillar retirement provision system is based on the standard assumption that someone works in a permanent position for their entire working life and pays into the 1st and 2nd pillars every year. This is why employment or career breaks often lead to pension shortfalls, and not only in the AHV system, but also in the BVG.

For every year in which no money is paid in, the total amount of capital saved in the BVG does not grow as planned and therefore the amount of the pension and any risk benefits in the event of death or disability are also different.

How you can support your employees

Explain to your employees how to read the pension fund statement: This contains forecasts for the retirement savings capital, for the expected BVG retirement pension, but also for the risk benefits in the event of disability and death. What's more, your employees will also find out whether there is any "buy-in potential" . This is the maximum amount that can still be paid into the 2nd pillar to close any shortfall. An individual consultation with a pension specialist will show you whether such a buy-in makes sense - and how it can be optimized. For example, the buy-in should be staggered over several years in order to realize optimum tax benefits. Important to know: Lump-sum withdrawals are blocked for all retirement assets for three years after a buy-in.

In future, contribution gaps in pillar 3a are to be closed through subsequent buy-ins - the Federal Council has submitted a corresponding proposal for consultation.

Anyone who earns less money on a permanent basis – due to part-time work for instance – will inevitably receive a lower pension in old age, and will often also not be as well covered in the event of death or disability.

Unfortunately, low incomes have a disproportionately high impact on the 2nd pillar: This is because the contributions are not levied on gross income, instead a fixed amount of 25,725 Swiss francs is deducted, the so-called "coordination deduction". For part-time employees, however, the coordination deduction means that only a relatively small part of the salary is taken into account when calculating the insured BVG salary. This has an impact on benefits after retirement and possibly also on risk protection in the event of death or disability.

How you can support your employees

Ask your pension fund whether the coordination deduction for part-time employees can be reduced in line with the workload. In this way, you will be able to reduce the pension shortfall for your employees. Explain to your employees that they will probably also have shortfalls in their death and disability cover. These can be covered via the restricted pillar 3a or the non-restricted pillar 3b.

If you have employees who only immigrated to Switzerland as adults, they will inevitably have pension shortfalls because they entered the 3-pillar system late on. Unfortunately, the missing contribution years in the AHV cannot be compensated for and result in a lower AHV pension (about 2.3 per cent per missing contribution year).

Under certain circumstances it may be possible to pay missing contributions to the occupational retirement provision or pension scheme. The pension fund statement shows how large this "buy-in potential" is. An individual consultation with a pension specialist is definitely worthwhile in order to benefit optimally from any tax advantages when buying into the fund.

Due to shortfalls in the 1st pillar, it is particularly important for migrants to make private retirement provision in the 3rd pillar for old age, but also for risks such as death and disability.

How you can support your employees

Inform new employees who have moved to Switzerland about the 3-pillar system here. If you employ several expats, you could organize an information event  that is tailored specifically to the situation of immigrants.

Unexpected life events such as divorce also have an impact on your employees' pension and retirement provision situation - and often in all three pillars.

In the 1st pillar, a divorce generally has an impact if one of the two spouses is not gainfully employed. This is because the protection provided by the spouse no longer exists for the period after the divorce. On retirement, the AHV contributions of the spouses are automatically split for the duration of the marriage.

In the 2nd pillar, both spouses essentially have – depending on the matrimonial property regime – the right to half of the amounts that were paid in during the marriage and until divorce was filed for. Whether this leads to an improvement or deterioration in their pension or retirement provision situation depends on who earns more and how good the respective pension fund is.

If no separation of property has been agreed, the assets from the 3rd pillar saved during the marriage must also be divided up in the event of a divorce. However, the funds from pillar 3a are generally only paid out on retirement.

How you can support your employees

After a divorce, the personal retirement provision situation should be reviewed individually. Recommend pension counseling to your employees where required.

Homeowners in Switzerland are unlikely to have paid off their residential property in full, and will probably have a mortgage of several hundred thousand Swiss francs. Although no monthly rent is due, there are fixed costs for the mortgage.

Ideally, your employees should review their pension or retirement provision situation before buying residential property and close any shortfalls, especially with regard to the risks of death and disability. This applies in particular if money from the pension fund was used to finance residential property.

How you can support your employees

There is a lot to consider in relation to the question of whether, how and when withdrawn amounts should be paid back in again through a pension fund buy-in, or whether amortization via the 2nd pillar may make sense. Advise your employees to seek comprehensive advice or invite a pension specialist to your company to provide on-site consultations. Financial or pension planning is particularly useful in view of an impending retirement, especially for homeowners.

Children are expensive - and the older they get, the more so. In addition to the increased costs for housing, food, clothing, furniture and holidays, there are also expenses for childcare, hobbies or education. At the same time, parents often have a lower income because one or both of them may have reduced the hours they work.

Due to higher expenses and lower income, there is often little money left to save. This makes it all the more important to check the pension or retirement provision situation. After all, parents are not only responsible for themselves, but also for the protection of their children.

How you can support your employees

Organize an information event with a pension specialist specifically for parents. You can also use this opportunity to show what benefits your company and your pension fund offer for parents - both for married and cohabiting couples. This is because they can vary considerably depending on the regulations.