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Pillar 3a: Potential for paying in regularly, especially for women without children

Credit Suisse publishes study on private retirement provision in Switzerland

Fifty-one percent of gainfully employed women in Switzerland regularly invest in tied pension provision, a lower share than men. This is primarily attributable to income differences. All other things being equal, women are slightly more likely to pay into Pillar 3a than men. However, their pension savings behavior varies depending on their personal circumstances: Women with children pay into Pillar 3a more frequently than those without, even though the former, on average, have lower levels of employment and income. Employment breaks and part-time work reinforce the pension gap; private pension provision contributes to reducing such gaps. In this regard, the introduction of an additional payment option for missed 3a deposits is worth considering.

Private pension provision is becoming increasingly important as an individual supplement to state and occupational pensions. The Pillar 3a assets held with insurance companies and in bank accounts have increased by over 70% within ten years. Including securities solutions, the Pillar 3a market amounted to over CHF 117 billion as of the end of 2017. However, there is still a lot of potential in private pension provision. According to data from the Swiss Federal Statistical Office, only 55% of the Swiss working population between 18 and retirement age regularly pay into Pillar 3a (as of 2015). Additionally, on average, Swiss households deposit far less than the maximum amount. In their study published today, "Private Retirement Provision – Mind the gap: part-time, timeout, pension shortfalls", Credit Suisse economists examine the question of which factors impact Pillar 3a savings behavior, focusing especially on women and families.

All other things being equal, women are slightly more likely to pay into Pillar 3a than men
Roughly speaking, only every other gainfully employed woman in Switzerland regularly pays into tied pension provision. Among men, the share is 58%. The analysis of Credit Suisse economists shows, however, that all other things being equal – e.g. same age, same education and income level, similar family situation, etc. – women are slightly more, not less, likely to pay into Pillar 3a than men. The impact of gender, however, is small compared to other factors. The main driver in this respect is income. Persons in the highest income category have a seven times higher chance of making regular Pillar 3a deposits than persons in the lowest income quintile. The fact that the share of women paying into Pillar 3a is effectively lower than that of men is therefore largely due to income differences between genders. At CHF 51,600, the average annual gross income of women surveyed on private pension provision in 2015 was around 35% lower than men's (CHF 79,730). Lower levels of employment and more frequent career breaks among women – including in connection with raising a family – are responsible for part of this pay gap.


Many families do not fully exploit the Pillar 3a maximum amount
In addition to income, the respective family situation also impacts Pillar 3a savings behavior. Credit Suisse economists found that gainfully employed people with children tended to make more frequent deposits to tied pension provision than single people without children, which suggests that concerns about financial security after retirement become more important once children arrive. According to data from the Swiss Federal Tax Administration, married dual income gainfully employed couples with children paid a national average of almost CHF 2,870 per person into Pillar 3a for 2015. In Stans or Solothurn, the average deposit of over CHF 3,000 is almost twice as high as in Geneva (CHF 1,721) or Bellinzona (CHF 1,886). In other words, many Swiss families deposit nowhere near the Pillar 3a maximum amount, which for those in gainful employment was CHF 6,768 in 2015 (CHF 6,826 in 2019).


Potential for more regular Pillar 3a payments, especially among women with no children
In order to better illustrate the connection between 3a savings behavior and the personal circumstances of gainfully employed Swiss women, the study authors divided the latter into eight groups that were as homogeneous as possible (clusters) and four main categories (see figure). In the first two groups, which primarily include young, single women with a high level of employment and no children, the share of women who make 3a deposits was only 33% and 45%. In light of the relatively high average income, however, it should be financially feasible for many of these women to pay at least a small amount into Pillar 3a on a regular basis. Divorced, single women also make below-average deposits to tied pension provision (48%), as do women in relationships with children and low incomes (35%). Here, financial reasons are most likely key. The cluster analysis also shows that, among women in dual income couples, those with children tend to make more frequent deposits (depending on the group, 61% to 70%) than those without (60% to 63%). This is despite the fact that their level of employment and income, on average, are lower than those of DINKS ("double income no kids"). Therefore, Credit Suisse economists see potential for even more regular Pillar 3a deposits primarily among women without children.


Private pension provision can help compensate savings gaps
Then, using simulations, Credit Suisse economists show how part-time work and career breaks – biographical elements that predominantly, but not exclusively, affect women – impact retirement income based on the salary amount. In the case of a teacher with a salary development of CHF 70,000 at the age of 25 to CHF 100,000 upon retirement, they calculate, for instance, that a six-year career break at the age of 30, followed by eight years with an employment level of 60% leads to a reduction in retirement income from the first and second pillars of around 14%. The pension gap, meaning the difference between the financial needs after retirement (as a rule of thumb, 80% of the last income) and the benefits from state and occupational pension provision, increases from CHF 19,000 to CHF 27,000 per year. By paying into Pillar 3a early and regularly, however, pension gaps can be reduced. With an annual deposit of around CHF 3,500 for every year of gainful employment, the teacher from the example could fully compensate the gap resulting from the career break and part-time work. To achieve the 80% goal, however, even with the respective deposit of the current 3a maximum amount, there would still be a savings gap of around CHF 13,000.

Increasing the flexibility of Pillar 3a is worth considering

From a social viewpoint, good coverage of financial needs during retirement is key. Demographic, economic, and social developments are presenting increasing challenges to the Swiss pension system. In the extra-mandatory part of the second pillar, benefits are falling. Thus, private pension provision is becoming increasingly important. It would make sense to consider a reform of Pillar 3a that would strengthen the incentives for private saving and, at the same time, better take into account the changing personal circumstances of the population over time. Credit Suisse economists consider the introduction of an option to allow retroactive payments for missed 3a deposits much more promising than increasing the tax-exempt maximum amount – which would primarily benefit higher incomes – or allowing those not in gainful employment access to Pillar 3a. As shown in the study, the possibility of staggering purchases, for instance, would also help less wealthy people build a third pillar. This option for retroactive payments would especially help to reduce 3a savings gaps due to career breaks. This would especially benefit women, as well as students, those in further training and persons taking a break for other reasons. This would also be beneficial for many gainfully employed people who make no or small deposits, including many young people. 

The study "Private Retirement Provision – Mind the gap: part time, timeout, pension shortfalls" can be found on the internet in English, German, French, and Italian at: