On March 4th, 2024, Swiss voters approved a move to pay an extra month’s state pension to retirees.
Under the new law, which will go into effect in 2026, retirees will receive an additional pension, of the same amount as their ‘regular’ first-pillar AHV/AVS amount they get each month.
This would correspond to a monthly hike in pensions of 8.33 percent which, according to supporters of the measure, is a necessary increase to compensate for the inflation-driven higher cost of living and lower purchasing power.
Under Switzerland’s three-pillar pension scheme, AHV/AVS (the first pillar) is set up to provide only the very basic income for retired people.
This means a monthly payment ranging from 1,225 francs to 2,450 francs a month for an individual, based on the salary and the length of employment. Married couples receive 150 percent of the maximum individual pension — that is, 3,585 francs at most.
Clearly, this is not enough to live on in an expensive country like Switzerland, and this is where the second-pillar pension, called BVG /LPP, kicks in.
It is obligatory for anyone who earns at least 22,050 francs a year.
The combined income from both pensions is intended to correspond to between 60 and 70 percent of the retirees’ last salary.
Whether or not this is enough to live on depends on where the pensioners reside (large city or rural areas), and their spending habits — the thriftier they are, the better off financially they will be.
READ ALSO: What is Switzerland’s 'second' pension and how you will benefit from it?
For those who want a more comfortable retirement, there is also an option of a private pension. That’s the third pillar.
Unlike the first two, this one is a voluntary contribution to your pension, whose aim is to ensure an additional income stream after you retire.
In a nutshell, it is a type of a savings account which you can open with a bank or insurance company when you start working (or at any time after).
This article provides all the details about this plan:
READ ALSO: What is Switzerland's 'third-pillar' pension and how can it benefit you?
Should you set up this plan?
The answer depends on several factors.
First, the ‘pros’, the most obvious of which is that you will have more money to live on each month, on top of your two other pension pillars.
Just how much more depends on the amount you contribute to this fund each month; clearly, the more you pay in while you work, the more you will get out of it once you retire.
The maximum amount that you can pay into this account each year is 7,056 francs. Self-employed people without a second pillar can pay in 20 percent of their income, but no more than 35,280 francs a year.
That’s the maximum which, if you can afford to put aside each year, you will give you a very comfortable nest egg when you retire.
As an example, if you contribute the full amount each year during the 44 years of full-time employment (from age 31 to 65), you will have well over 300,000 francs accumulated in the third-pillar pension when you retire.
Obviously, this is the 'best-case' scenario that is not applicable to every employee.
But even if you contribute less than the allowed maximum, and for fewer than 44 years, you will still have extra money saved to add to your two other pillars.
If you opt to open a third-pillar account however, keep in mind that while you are investing in your future, contributing to this fund will leave you with less disposable income while you are still working.
That’s because you will have to put a part of your salary into this account which, depending on what your income is, may or may not be doable.
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