Pension funds offer members various options of controlling the amount of their future pension. It pays to know the relevant parameters.
Starting at an annual salary of CHF 127,980, members can choose their investment strategy for salary components above this threshold. Generally known as 1e pension plans, such employee benefits solutions allow members to select one of several predefined funds. However, not every employer offers such pension plans.
Choosing a savings plan
Members with incomes below CHF 127,980 have less power over the amount of their future pension since they can neither control the coverage ratio, the conversion rate or the development of the retirement assets. This is true for pension funds, collective foundations and insurance funds alike. However, these are not the only relevant parameters. Members can control the amount of their pension in the following areas:
- When choosing a job or an employer, it is important to analyse the pension fund solution and challenge it if necessary.
- Many pension funds offer options in connection with the savings plan. In most cases there are three contribution options – a standard, a plus and a minus option. Those who pay in more every month, will have higher retirement assets in later years. Employers are required by law to pay in the same contribution under each option.
- The number of contribution years has a significant impact on the retirement assets. Many employee benefits institutions offer flexible retirement ages, often ranging between 58 and 70. Generally, the longer you work, the higher your pension will be.
- Increasingly, pension fund regulations also allow for partial retirement. This means that employees can, for instance, retire at 30% or 50% and continue working at 70% or 50%. However, before a decision is made, it is important to calculate exactly how much money will be available later.
Throughout their working lives, employees can take other decisions that affect the amount of their pension. The following issues should be considered:
- If you make an advance withdrawal from your pension fund, for instance for the purchase of your own home, your pension will be lower in later years.
- Voluntary buy-ins into the pension fund improve your benefits after retirement and may offer tax advantages.
- Once the assets and the retirement date are known, many pension funds offer a choice between lump-sum withdrawal, regular pension and hybrid forms. When making a decision, you should take a number of factors into account, for example, whether you may leave behind a partner who may benefit from a pension. You should also consider the question whether you are in poor health and may have a low life expectancy. In any event, the decision should be well considered since it will apply for the rest of your life.
As a last option, individual and flexible retirement provision can also be implemented outside occupational pension provision. On the one hand, there is the well-known tax-privileged pillar 3a scheme. However, this scheme has the disadvantage that assets cannot be freely disposed of at all times since retirement benefits will be paid at the earliest five years before and at the latest five years after the regular AHV retirement age (65 years for men and 64 years for women).
On the other hand, members can save in pillar 3b, where independent private pension provision is based on personal saving, such as on savings accounts or investment funds. Although this option is not tax privileged, it offers greater flexibility since the savings assets are available at any time. Members could, for instance, choose the pension fund’s “minus” contribution option and privately save up the resulting additional funds. Many members see this as a welcome increase in flexibility as they approach retirement age.
For members aged about 50 and over, it is particularly advisable to discuss their personal financial circumstances with a financial planner since the planned retirement measures may not always be the best from a financial point of view. Even though financial planning involves costs, sound advice often results in tax savings of multiple times the cost.