Young women could invest more in their tied pension provision

Tied pension provision: Young women would have excellent prospects of a good retirement provision

Many young, single women do not save much for retirement, even though they would have the financial means to do so. But this is important, especially when you consider possible career breaks later on. People who pay into the third pillar early and regularly can reduce pension gaps and maintain their usual standard of living in old age. Tied pension provision also provides opportunities for saving taxes and building wealth.

Many young, gainfully employed women don't invest enough into their tied pension provision (Pillar 3a). Despite relatively high incomes, averaging CHF 51,000 to 76,000 depending on the group, only around 33% to 45% regularly pay into the third pillar, according to the findings of the current Credit Suisse study "Mind the gap: Part time, time out, pension gap".

3a pension profiles: Young women rarely pay into the third pillar 3a

Single Swiss women only rarely pay into tied pension provision

The younger the women, the less they worry about retirement provision.

Source: Credit Suisse, 2019

3a savings are not a priority for young women

In most young women's minds, retirement is still in the distant future. They often focus on their education and career, and use their free time to fulfill long-held wishes such as trips and hobbies. Although a small, regular payment into tied pension provision would be financially feasible in most cases, retirement provision is not a priority for most of them.

Education is more important to young women than tied pension provision.

Young women value a good education

Young women focus on education and career instead of retirement provision.

Source: Credit Suisse, 2019

But for women in particular, it is highly beneficial to start saving toward a pension at this stage in life. This is because, given the long-term time horizon, the compound interest effect is especially pronounced for young people. Safekeeping account solutions with securities also offer an interesting option for increasing the return prospects in the long term. And people who start early with 3a savings will benefit from tax advantages even before retirement. In fact, they benefit three times: when paying in, during the term, and when making a gradual withdrawal of the tied pension provision balance.

Counteracting pension gaps in good time with 3a contributions

Especially after starting a family, many women decide to work part time or take time out. There are also many women who, in the course of their career, choose to reduce their level of employment for the sake of their personal work-life balance.

Young women should pay into tied pension provision

Young women have not yet started families

There is often more disposable income before starting a family than after. For younger people, it would therefore be worth investing in tied pension provision at an early stage. 

Source: Credit Suisse, 2019

This makes not only 3a saving more difficult, but also building retirement savings in the first and second pillar. Pension gaps can increase as a result. So after retirement, the 70% to 80% of the previous income is not achieved. From experience, this is a guideline for being able to maintain the usual standard of living.

Young women in particular have the opportunity to effectively provide for old age through payments into tied pension provision. However, it's certainly not compulsory to pay in the full annual amount. They can counteract pension gaps even with small, regular payments, starting as early as possible.

Third pillar offsets pension gaps

The biggest concern of Swiss people in 2018 was providing for retirement, as shown by the Credit Suisse Worry Barometer 2018. These uncertainties are based on the unclear effects of demographic changes and low interest on savings in the first and second pillar. Already today, lower conversion rates are causing noticeable pension reductions in the extra-mandatory part of employee benefits insurance – another reason why the third pillar is becoming increasingly important. This helps to offset any pension shortfalls from the state pension and employee benefits insurance.

Young women can avoid later pension gaps with the tied pension provision

Avoiding pension gaps

Divorced women in particular often have pension gaps in their retirement provision. This can be prevented by paying into tied pension provision while still single.

Source: Credit Suisse, 2019

Young people have the opportunity to start building up 3a capital early on. Since women often achieve a smaller pension than their male colleagues, due to their often less linear career paths, it is all the more important for them to look after their private retirement provision early on. This is to ensure that there are no pension gaps in old age and they don't have to lower their standard of living.