How women can improve their retirement planning

Case 1: Married, two children, employed (60%)

Age: 45
Net income: CHF 40,500 per year
Expenses/year: CHF 36,400
Savings/year: CHF 4,100 per year
Pension fund: yes
Annual income after retirement: CHF 33,475 (CHF 22,050 from OASI*, CHF 11,425 from pension fund) *Corresponds to 50% of the maximum married couple’s pension
Asset requirement up to age 85 (gap): CHF 64,393 (incl. 1% inflation)
Assets saved up to 65: CHF 104,733 (with 2.5% return)
Deviation from total requirement: CHF +40,340

What to do: This woman can close the expected pension gap with her current savings rate and even save additional retirement capital. This will allow her to maintain her standard of living after retirement, but her financial situation should not be viewed in isolation. She may also have to use her assets to close any pension gaps left by her husband. She should therefore continue to increase her retirement assets. For example, it would make sense to pay into pillar 3a, where she saves taxes and benefits from a good rate of interest. Alternatively, she could increase her workload to improve her savings rate and expected pension.

Case 2: Unmarried, no children, employed (80%)

Age: 50
Net income: CHF 64,200 per year
Expenses/year: CHF 57,800
Savings/year: CHF 6,400
Pension fund: yes
Annual income after retirement: CHF 42,772 (CHF 23,280 from OASI, CHF 19,492 from pension fund)
Asset requirement up to age 85 (gap): CHF 330,886 (incl. 1% inflation)
Assets saved up to 65: CHF 114,764 (with 2.5% return)
Deviation from total requirement: CHF -216,122

What to do: As things stand today, the woman must reckon with a large pension gap. This does not only affect income from the pension fund: Due to her income and without additional income from a spouse, the woman does not reach the maximum possible OASI pension. If she carries on like this, she will have to severely restrict her standard of living in old age. It is therefore advisable to build up additional savings. The best option in her case would be a higher workload. This would also enable her to significantly increase the savings rate. She should also pay into pillar 3a every year – the maximum amount if possible, in order to take full advantage of the tax benefits. By buying into the pension fund, she can also improve her pension benefits and save on taxes.

Case 3: Married, two children, self-employed (60%)

Age: 47
Net income: CHF 35,600 per year
Expenses/year: CHF 32,000
Savings/year: CHF 3,600
Pension fund: no
Annual income after retirement: CHF 22,050 from OASI* *Corresponds to 50% of the maximum married couple’s pension
Asset requirement up to age 85 (gap): CHF 219,089 (incl. 1% inflation)
Assets saved up to 65: CHF 80,590 (with 2.5% return)
Deviation from total requirement: CHF -138,498

What to do: Not being a member of a pension fund means that an important source of income in old age is lost. As things stand today, the woman would be dependent on her husband’s financial support. She should therefore consider joining a pension fund. As a self-employed person, the pension fund of the respective professional association is open to her. If there is no suitable professional association, she can join the Substitute Occupational Benefit Institution. Due to the risk and savings contributions to the pension fund, her savings ratio is likely to decrease. In return, however, the woman benefits not only from higher pension benefits, but also from risk coverage, for example in the event of disability. To improve her financial situation, she should also consider increasing her workload. It also makes sense to pay into pillar 3a, but her own savings rate will not be sufficient for the maximum amount.

Case 4: Divorced, two children, employed (70%)

Age: 42
Net income: 39,500 CHF per year + maintenance payments for children
Expenses/year: CHF 39,500
Savings/year: CHF 0
Pension fund: yes
Annual income after retirement: CHF 35,161 (CHF 20,820 from OASI, CHF 14,341 from pension fund)
Asset requirement up to age 85 (gap): CHF 95,528 (incl. 1% inflation)
Assets saved up to 65: none
Deviation from total requirement: CHF -95,528

What to do: The woman lives in financially strained circumstances. In order to improve her room for manoeuvre in old age, it would make sense to save up retirement assets. To do this, she would have to increase her workload, if this is possible. The higher workload would also improve her OASI pension – she currently does not reach the maximum OASI pension. If she has a nest egg for unforeseen expenses, she could invest additional savings. In her situation, a fund savings plan is ideal because she can withdraw money from it at any time if necessary. She would not have this flexibility when paying into pillar 3a. In addition, the tax savings would be low due to the low marginal tax rate with pillar 3a. It only makes sense to buy into the pension fund if you have sufficient reserves, as the tax benefits are also low. Another option for improving the OASI pension lies in parental credits. These are supplements that parents receive in addition to earned income – CHF 44,100 for each year in which a child is younger than 16. Instead of the often chosen 50/50 split, she could agree with her ex-husband that the parental credits will only be allocated to her. This would increase her average OASI income – and consequently also the resulting OASI benefits.

The four case studies come from Stephanie Bosshard, Financial Planner at Migros Bank.

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