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How much should you save for a ‘comfortable’ retirement in Switzerland?

How much should you save for a 'comfortable' retirement in Switzerland?
A couple sit on a bench drinking a coffee. Photo: Tima Miroshnichenko from Pexels
While still working, a person over the age of 50 in Switzerland must set aside 14 percent of their income for retirement. How does this compare to other countries?

To maintain the usual standard of living during retirement, residents of Switzerland need more savings nowadays than four years ago, according to an analysis by UBS bank, which compared the pension systems of 24 countries.

In 2017, the last time UBS conducted a similar study, that number was 11 percent.

The new UBS International Pension Gap Index found that “the Swiss pension system still enjoys a high reputation. However, contrary to other countries, it is more difficult to push through urgently needed reforms to ensure this reputation will last” .

However, “in some countries, much higher private savings rates than in Switzerland are necessary to maintain living standards in retirement”, the study’s authors said.

For instance, Switzerland scores better than its neighbours.

Italians must put aside 28 percent of their money for their retirement, Germans 30 percent, and the French 44.

In the United States, people must save 42 percent of their income to live comfortably after they retire.

Of the 24 surveyed countries, pensioners in Nigeria (145 percent), Russia (108 percent) and Japan (102 percent) fare the worst.

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What are the best countries for retirees, in terms of savings needed?

Hands down it is the United Arab Emirates (UAE), where residents don’t have to save any money at all for a comfortable retirement.

The reason, according, to UBS, is that “some countries start at an advantage and can promise their population more generous pension benefits thanks to their pension reserves”.

In UAE’s case, it is due to its main industry, petroleum.

Nations that do better than Switzerland in terms of retirement savings are Singapore (3 percent), the Netherlands (5 percent) as well as Saudi Arabia and Australia (both 7 percent).

You can see complete results for each of the 24 surveyed countries here.

Overall, with an average required savings ratio of 14 percent (to be put aside while the person is still working), Switzerland ranks in the top third of the ranking. “This level of personal responsibility should be sustainable for the majority of the population, but only if third pillar is used consistently”, the study noted.

What are the three pillars that the Swiss pension system is based on?

Switzerland is one of the few countries with two mandatory pension pillars that are both financed by employer and employee. The third one is voluntary.

Pillar one is the government-administered old-age and survivor’s insurance scheme (AHV / AVS). It is a pay-as-you-go scheme that ensures a minimum pension above poverty level.

Pillar two is the private occupations pension fund (BV / LPP), which follows a funded principle and can be taken as pension, lump sum or a mix. Both pillars are financed equally by employer’s and employee’s contributions — in total 8.7 percent for pillar one and between 7 and 18 percent for pillar two.

Together, the two aim to achieve a total pension income of 50 to 70 percent of pre-retirement earnings.

Besides these two pillars, Switzerland has a third pillar, which is not mandatory. It includes private tax-incentivised savings schemes and life insurance plans.

This pillar was not considered in UBS calculations, even though nearly two-thirds of the population have it.

The statutory retirement age in Switzerland is currently 64 for women and 65 for men.

READ MORE: Why is Switzerland so expensive?


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