Gaetano Cardillo, trainer for client advisors, Credit Suisse, on pension gaps

Closing Pension Gaps – almost everyone is affected

How do pension gaps arise, and how can you close them? We put these questions to Gaetano Cardillo, trainer for client advisors at Credit Suisse. His advice: The "pension gap" problem should be tackled at a sufficiently early stage. 

The statutory payments into Old Age and Survivors' Insurance, or AHV (first pillar) and the pension fund (second pillar) guarantee a steady income for retirees. However, in most cases, this is not enough to enable people to maintain the standard of living to which they are accustomed. This is known as a pension gap.

Many employees are not aware of the extent to which pension gaps can affect their circumstances in old age. Gaetano Cardillo knows how to close pension gaps and how to prevent deterioration in quality of life.

Are pension gaps a niche problem, or does everyone need to think about this issue?

Fundamentally, it is a topic that concerns everyone. The sooner you deal with it, the better. In Switzerland, we have an excellent pension system based on the three-pillar principle, and it is the envy of many countries. With the first and second pillars, we have a pension system that is largely governed by law. However, the aim of these two pillars is to cover only about 60% of final income. In most cases, 60% is not enough to meet the demands of someone's normal livelihood. The probability of a gap opening up between living costs and pension is very high. 

Sample calculation: This is how a pension gap can be closed

Despite uninterrupted contributions to the AHV and pension fund, only approximately 60% of the salary is covered upon retirement with the first and second pillars. However, according to the general guidelines, roughly 80% would be required to continue the same standard of living. This difference is the pension gap, which needs to be closed by means of careful retirement planning.

Situation before retirement


Annual salary

CHF 100,000

Situation after retirement

AHV benefits (first pillar) CHF 28,440
Pension fund benefits (social second pillar)* CHF 30,000
Total CHF 58,440

Calculating the pension gap

Requirement CHF 80,000
Benefits from the first and second pillars CHF 58,440
Pension gap per year CHF 21,560

* Assumption for second-pillar pension payout: CHF 30,000 (the actual benefits are shown on the pension fund statement). 

In practice, what is the worst that can happen if someone ignores the issue of pension gaps?

The benefits of the AHV and pension fund are actually based on minimum requirements for retirees. However, it may be that this simply is not enough to cover the needs of day-to-day life. Especially in old age, with issues such as health insurance plans becoming ever more expensive, there comes a point when things just don't add up. Or, if you are a property owner, you may find that you can suddenly no longer cover the costs and are forced to make a change – but perhaps there is not a suitable property available in the much-loved neighborhood. These are effects that are very unpleasant to experience in old age.

One thing that I often see, especially with immigrants, is that pension gaps force them to return to their home countries in old age because living costs are generally lower there.

From 50 onward, it is high time to give serious consideration to the matter of pension planning. 

Gaetano Cardillo 

When is the right time to think about personal pension gaps, and when is it too late?

As a rule, you should check the consequences of your pension planning any time your circumstances change. That could be a career move, an extended stay abroad, starting a family, divorce – in certain situations, it may be advisable to consult an expert. When you're approaching retirement, it is high time to give serious consideration to the matter. We recommend dealing with it no later than the age of 50

What should you do in this case?

Step one: Request an AHV pension forecast from the compensation office and study the pension fund statement to determine your pension income. It's also very important to draw up a budget and list the costs that you need to take into account. In personal consultations, I often suggest thinking about the question of "When do you spend more money – while working, or during leisure time?" It is a fact that, after retirement, many want to realize certain dreams, pursue hobbies, and indulge themselves a little.

In reality, 80% of your final income is the guideline figure for covering your needs after retirement. Yet, that can vary from case to case. If you reach 50 and find that you have a clear idea of what you want to do in retirement, there is still time to make changes and optimizations. For example, you can make staggered contributions to your pension fund with tax benefits. It is also very important to take a close look at your pension fund. Is it stable? What do the rules say? It may also be advisable to ask an expert exactly what you need to look out for when reading between the lines to avoid surprises.

How can you avoid pension gaps if you have been away from work for an extended period or are planning to be?

The first pillar is fundamental. Particularly in the case of women with children, students, and people who have spent a long time abroad, for example, gaps in the first pillar should be avoided. Since there are no contributions at all to the pension fund during these times, it is important to endeavor to use private pension provisions to compensate for this part, using pillar 3a or, alternatively, pillar 3b, with which the money remains available as required. Various savings plan solutions or other investment types are possible at this point. However, pension gaps can arise even when you are employed continuously, such as if you have made a big step in your career and your standard of income is suddenly much higher than before.

What is the best way to close pension gaps as far as taxes are concerned?

First and foremost, we recommend payments into pillar 3a. Here, if possible, you should always pay in the maximum annual contribution that can be deducted from your taxable income – currently CHF 6,826*. There is a second option in the form of purchasing pension benefits, which can also be deducted from your taxable income. In addition, neither option is subject to wealth, income, or withholding taxes throughout the entire duration of the investment. In the event of withdrawal in the form of a lump sum, both options are again subject to tax – but separately from other income, and at a preferential rate.

Gaetano Cardillo, Credit Suisse Rapperswil

Gaetano Cardillo, trainer for client advisors at Credit Suisse

Gaetano Cardillo (49), the son of Italian immigrants, grew up in Rapperswil-Jona and was trained in banking before completing additional internal and external training. He has worked at Credit Suisse since 1995. From 1997 to 2017, he was a client advisor in Rapperswil, where pension planning was a key topic in his advisory activities. He currently trains client advisors in Zurich. 

Closing pension gaps

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