Pension provision for employees

The General Rule of Pension Provision Is: Waiting Is Not a Good Strategy 

"When should you start making deposits for your retirement?" "How can you best save money for your retirement?" "To what extent is private pension provision possible?" Customized retirement planning provides the answers. Dr. Sabina Gallati from the University Hospital of Bern was advised by financial planner Davide Coppola. Both of them talk about their experiences in this interview. 

Mrs. Gallati, when did you start to consciously deal with your pension provision?

Basically, I'm not a person who likes to deal with money. Although my father and my brother are economists, I find the topic rather boring. However, there have been two events that led me to the issue: number one, when my first marriage ended. Back then, I had to pay half of my pension to my ex-husband, which ripped a hole in my pension provision. Both of my children, who I was financing, were still in school, which provoked existential anxiety for me. And the second was a very sad event, when my daughter's partner passed away. Neither of them had had anything arranged in the event of a death and my daughter urged me to do so. I therefore had a marriage and inheritance contract drawn up.

Mr. Coppola, is it usually events that motivate people to deal with pension provision?

Often, yes. In this case, prior to the comprehensive financial planning and despite little interest in the topic of finances, some things were already preordained by the events. That is dangerous in this sense because pension provision is a one-way street and certain things can no longer be changed at some point later on due to legal regulations. In our three-pillar system, each pillar has its laws that are interconnected, and that is something that can be coordinated by the financial planner. Another example is taxes. If you don't look after your pension provision for a long time, you won't be able to get the fiscally optimum amount anymore.  

Mrs. Gallati, how did you assess yourself in regard to your pension provision before your professional support from Davide Coppola?

I believed that I was reasonably well positioned with the inheritance contract and that the most important thing was taken care of. I knew that I should probably get help for one thing or another, but I had no idea how extensive and complex the pension provision matter was. For example, I have no advance directive or even a living will. It was very helpful for me that Mr. Coppola worked through the issue of pension provision holistically with me. Everything is displayed in my personal financial plan and I will be professionally coached and accompanied through retirement. Now I have security and can look to the future without worries.

Mr. Coppola, what was or is worth noting about the client Sabina Gallati in particular?

She is currently employed and in a second marriage, in which both spouses have two children from the first marriage. This makes the arrangements for the event of death, i.e. who inherits what, a central issue – and also the provisions in regard to the 2nd pillar, i.e. the pension fund. For Mrs. Gallati, like most employees, the majority of her pension provision is in the pension fund. Optimization potential for taxes must be identified so as to reduce the tax burden in the long term. Saving on taxes also means planning for taxes: Tax saving is optimal only when different areas and measures are timed with each other.

Saving on taxes also means planning for taxes! 

Davide Coppola 

Mrs. Gallati, the largest portion of your pension provision is in the pension fund and in recurring waves, we have heard that the pension funds aren't doing well. How does that make you feel?

Rather uneasy. I used to think that all of my money would be safe in a pension fund. Nowadays, you see the headlines again about shortfalls, resetting of conversion rates, etc. That concerned me, of course. All the more so since I'm no expert in the field of finance; I was very grateful to make use of advice that could make me feel at ease again.

Mr. Coppola, what is your advice: Withdraw pension fund money or not?

Basically, there isn't a single solution. That's always very individual. Whether, at the time of retirement, the pension, the capital or a portion of the capital should be drawn from the pension fund is one of the most common and most important issues during financial preparation for retirement. The decision is of major significance: The two withdrawal types differ substantially and the assets in the 2nd pillar are for many retirees the most important source of revenue in old age. What's more, once a decision is made, it can no longer be reversed. A financial plan serves as a basis for such a decision, in that an individual and comprehensive analysis is done, taking tax and inheritance issues into consideration.

Mrs. Gallati, what currently concerns you in matters of your pension provision?

I'm currently considering if I should give our children a part as advance inheritance. These days, they could use the financial resources, and even Davide Coppola endorses the idea that it would be nicer to be able to give to the children with warm hands. But of course I now have to consider how high this part should be so that I'm still sufficiently provided for in old age. So it's currently a struggle for me to create my budget. I have to create a budget of my income and expenditures for my overall financial planning and especially for my pension provision. That sounds simple at first, but once you sit down and try to make a note of all your expenditures, it's harder than you think. Fortunately, Mr. Coppola confirmed for me that even financial planners have difficulties creating an accurate budget for themselves.

Mr. Coppola, what is the biggest mistake in regard to pension provision?

Early evaluations are worthwhile, since some measures need to be initiated five to ten years before retirement. Employees often don't even start thinking about the issue until six months before their retirement. Planning too late has financial consequences, since many opportunities for optimization need to be initiated early on. A structured approach is important. Events and decisions should be sorted and evaluated according to their importance.