This is what single moms can do for their retirement provision

Retirement provision for single moms: Four tips so that you can lead a self-determined life in retirement

Women with children are aware of the importance of saving for their retirement. This is shown by a recent Credit Suisse study. But less than half of single women with children pay regularly into Pillar 3a – probably due in part to being on a tight budget – with correspondingly negative consequences for their retirement provision. We provide four tips on how you can provide for more financial independence in your old age.

Single moms often receive alimony, but certain costs, such as living costs, are relatively high. They usually bear sole responsibility for financial decisions: Will the budget stretch to my child's piano lessons? Will it cover buying a car? Their own retirement provision often tends to be a long way down on their list of priorities.

Pension provision profile of single women in Switzerland

Single moms in Switzerland

Fifty-six percent of divorced and single women have children. Just under half make regular payments into Pillar 3a.

Source: Study "Mind the gap: Part time, timeout, pension shortfalls," publ. Credit Suisse, 2019.

But it is precisely single women who should take measures to save for their retirement at an early stage, so as to be able to lead a financially independent life in their old age. In many cases, however, this is easier said than done. On top of this, the group of single mothers is very heterogeneous – a single mother with small children has different needs and possibilities than someone with teenage children. So if one tip does not seem to be right for you, keep reading – perhaps the next one will be suitable.

1. More than one part-time job: Consolidate pension funds

Anyone who has more than one part-time job risks being able to save less in the second pillar (BVG) than if they were employed by a single employer for the same number of hours per week. The reason for this is the coordination deduction of CHF 25,095, which around half of the Swiss pension funds deduct from each individual salary before it becomes subject to employee benefits insurance. So, for example, someone who works for two employers and is paid CHF 30,000 by each has a salary of CHF 4,905 insured with both employers after the coordination deduction, i.e. a total of CHF 9,810. With the same salary from just one employer (CHF 60,000) CHF 35,115 would be insured under the second pillar (BVG). If you have more than one job, you can either have both salaries insured via the pension fund of one of your employers or you can join the Substitute Occupational Benefit Institution.
Note: It is up to the insured to take the initiative in this regard and raise the subject with the employers.

2. Pillar 3a helps twice over

Part-time work and career breaks have a much more negative impact on a person's subsequent retirement assets in the first and second pillars than most people realize – appreciable pension gaps arise. Gaps in employee benefits insurance can also arise for self-employed people. It is therefore all the more important to pay into Pillar 3a whenever possible, even if the maximum amount is too high for you at the moment. Moreover making regular payments into Pillar 3a brings many advantages at the same time, even if the contributions are low: You accumulate assets, which you can use to fill in some or all of your pension gaps; in addition, you benefit from the compound interest effect and pay significantly less tax. How high the tax savings are for you depends on your place of residence and your taxable income.

Impact of career break and part-time work on Pillar 3a and pension fund

Career break and part-time work markedly impact accumulation of pension savings

Anyone who takes a career break or reduces their level of employment feels the effects in their retirement provision. The example shows the asset development in the second and third pillars in the case of a six-year career break, followed by an eight-year period of working part-time at 60%. It is based on paying an annual contribution of CHF 6,826 into Pillar 3a (except during the career break) as well as an average interest/return of 2% p.a.

Source: Study "Mind the gap: Part time, timeout, pension shortfalls," publ. Credit Suisse, 2019.

Open a pension account or pension securities account

Open a 3a pension account or pension securities account This link target opens in a new window
A pension securities account is especially suitable for long-term investment as you benefit from higher yield opportunities.

3. Create clarity

Can you estimate how high your pension will be?

The fact that retirement provision in Switzerland consists of three pillars (AHV, BVG and private pension provision) is common knowledge, but for single parents it can sometimes be complicated, for example after a divorce.

With the Credit Suisse pension calculator, you can calculate your future pension with just a few clicks. If recommendations are displayed, it is useful to address these as soon as possible, even though retirement may be a long way off.

Even if you understand your pension fund statement precisely and can determine with certainty how high your future pension will be, these forecasts should be viewed with caution. Experts expect that the pensions of future retirees who are under 50 years of age today could be significantly lower than is being communicated today.

Single women by marital status

Ninety-two percent of single moms are divorced

After a divorce women face the threat of gaps in their retirement provision. Therefore it is particularly important for them to have private pension provision.

Source: Study "Mind the gap: Part time, timeout, pension shortfalls," publ. Credit Suisse, 2019.

4. Is increasing your level of employment an option?

Perhaps increasing your level of employment is not an option for you at present. But your children will grow older and become more independent. Consider and plan early on whether and when increasing your level of employment will be realistic for your family situation.

A higher level of employment offers advantages:

  • More interesting jobs with good prospects of promotion usually exist only for those who have a higher level of employment.
  • In the case of retirement provision the following applies: The higher the level of employment, the better. Part-time jobs lead to significantly lower pensions. Large gaps arise in the second pillar (BVG, employee benefits insurance), because here the annual salary is insured only after reaching a minimum income threshold of CHF 21,510. Low levels of employment are thus often not insured under the BVG.