Lower salaries and part-time work prevent women from paying into Pillar 3a

Women would pay more into pillar 3a – if they could

Lower incomes and more part-time employment are the main reasons that women pay into Pillar 3a less frequently than men. A current Credit Suisse study shows that, all things being equal, women would pay more into their private pension provision than men.

Only around half of working women in Switzerland pay regularly into the third pillar. With a proportion of 58%, men pay significantly more often into their tied pension provision (as of 2015). The Credit Suisse economists investigated the causes of this different savings behavior. In addition to gender, other factors were taken into consideration such as age, income, and family situation. The findings of their current study: All other things being equal – e.g. the same age, the same income level, and similar family situation – women pay into Pillar 3a slightly more often than men.

Less income, less pension provision

The decisive factor for regular 3a savings is a person's salary. For example, the study showed that people with the highest incomes are over seven times more likely to pay into the third pillar than gainfully employed persons with the lowest incomes. The amount of contributions also increases with income, which puts women in particular in a precarious position. This is because women often have fewer financial resources at their disposal for private pension provision than men owing to part-time employment and career breaks. 

Couples and parents pay more regularly into Pillar 3a than single people with no children

People's savings behavior in the third pillar often depends on their personal life and family situation. In order to shed more light on this connection, the authors of the study tried to identify typical profiles of gainfully employed women – in other words, those who are generally able to pay into the third pillar. According to this analysis, gainfully employed Swiss women  can be broadly divided into eight groups, which, in turn, can be combined into four main categories. The 3a savings behavior of young, single women, single women (in most cases single parents),  women with families, and women in double-income couples with no children  were compared. This comparison shows that people in a partnership and/or who have children often pay into the third pillar more regularly than single people with no childrenMothers in double-income households  usually pay into private pension provision more frequently than women in double-income couples with no children – despite the fact that they tend to have a lower level of employment and income. Although families pay into Pillar 3a more regularly, average annual contributions by single parents and single-income couples with children are around CHF 900-CHF 1000 lower than those of single people with no children. 

Young women and DINKS in particular could do more about their retirement provision

Young, single women  make up more than one-third of gainfully employed women in Switzerland. Despite their relatively high average income of CHF 51,000 or CHF 76,000, depending on the group, only around 33% and 45% respectively of these women pay regularly into tied pension provision. 
Women from double-income, no kids households, so-called DINKS,  would also be in a good position financially to provide for their retirement. However, only about 60% of them regularly pay into the third pillar. 

Gainful employment significantly affects wealth accumulation

It is not only the third pillar that is influenced by women's family situation and income. Old Age and Survivors' Insurance  and BVG pensions  depend to a significant extent on the same factors. The serious consequences of a career break and part-time work for the accumulation of retirement capital are shown by the following two scenarios:

Performance of Pillar 3a and pension fund assets with no careers breaks

Scenario A: Asset performance with no career breaks

Asset performance in the second and third pillars given salary progression from CHF 70,000 to CHF 100,000, annual contribution into Pillar 3a of CHF 6,826, average interest/return of 2% p.a.

Source: Credit Suisse, 2019.

For example, if a 30-year-old female teacher with salary progression in the course of her career from CHF 70,000 to CHF 100,000 takes a six-year break to start a family and then works for eight years at a 60% level of employment, this significantly reduces her retirement assets. The assets saved in the pension fund are reduced by approximately CHF 95,000, and those in Pillar 3a by approximately CHF 80,000 compared with the scenario without a career break. This is assuming that the current maximum Pillar 3a amount was contributed in every year of gainful employment.

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

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

Asset performance in the second and third pillars given salary progression from CHF 70,000 to CHF 100,000, six-year career break followed by eight-year period of working 60%, annual deposit of CHF 6,826 into Pillar 3a (except during career break), average interest/return of 2% p.a. Past performance and financial market scenarios are not reliable indicators of future results.

Source: Credit Suisse, 2019.

The lower the income, the greater the reduction in retirement income

A career break and a 60% level of employment over several years reduce retirement income from the first and second pillars by between 11% and 14% depending on a person's salary. And the following applies here: The lower the income, the greater the difference. 

Career break and part-time work reduce pension income

Career break and part-time work reduce pension income

A six-year career break followed by eight years of working 60%  will affect a person's retirement income to a different extent depending on their earned income: While the pensions from the first and second pillars of a salesperson and a teacher each drop by 14%, that of a higher earning attorney only falls by 11%.

Source: Credit Suisse, 2019.

Private pension provision can help compensate savings gaps

The study shows that women with families are well aware of the importance of retirement provision. They have understood that private pension provision is becoming increasingly important. However, career breaks and part-time work often reduce their options for accumulating sufficient retirement assets. Even if the maximum amounts have been paid into Pillar 3a, the pension gaps, i.e. the shortfall from the pension reference value of 80% of final income, grow wider due to their family situation. 

The situation is different for young women with no children. In many cases, they would presumably have the financial means to make at least a smaller regular payment into their private pension and could benefit – given the long investment time horizon – from both the compound interest effect and, in particular, from securities solutions. Owing to low interest rates, securities are also an interesting option for all other groups in order to increase the potential returns. The well-placed DINKS and women who organize their business as either a sole proprietorship or general partnership could also close any pension shortfalls in their second pillar through more consistent payments into Pillar 3a while saving tax at the same time