Pension study 2022: Configuration options for retirement provision
The Swiss pension system allows workers to exert an influence on their individual retirement planning on various levels. Find out to what extent Swiss workers are already using these opportunities now and what trends have emerged in recent years – all of the findings are here in the pension study for 2022.
Fine-tune your own retirement provision
Switzerland's tried-and-tested three-pillar pension system is beginning to reach its limits. This is due to increasing life expectancy, demographic aging, and the persisting low interest rate environment. Reforms are essential in order to maintain benefit levels and for sustainable financing.
This necessity notwithstanding, however, there are already various options for current workers to proactively optimize their own financial situations in retirement. In our pension study, Credit Suisse experts shed light on the extent to which Swiss workers are already taking advantage of these opportunities.
Pillar 3a is gaining in importance
One popular option for self-directed retirement saving is making voluntary contributions to the tax-privileged Pillar 3a. In 2019, roughly 60 percent of Swiss workers made contributions to their tied private pension provision – with 53 percent doing so on a regular basis and 6 percent on an irregular basis. The Pillar 3a market saw solid growth over the subsequent year. During 2020, the first year of the COVID-19 pandemic, the number of insured persons making contributions into Pillar 3a rose by roughly 9 percent. The share of those making 3a contributions among young people under the age of 35, however, is below average. Due to the compound interest effect, those in this category would benefit from starting to save for retirement as early as possible.
Pillar 3a: Share of securities rising, particularly among younger workers
The potential returns in Pillar 3a can be increased by using securities solutions, which have historically performed better than interest accounts. Nevertheless, the vast majority of capital invested in Pillar 3a accounts with banks is still saved in interest-bearing accounts. The share of capital invested in 3a securities solutions has grown considerably in recent years, however, and currently stands at roughly 30 percent versus a level of 23 percent in 2016.
Young people in particular are increasingly investing their 3a pension capital in securities. This is prudent, since securities solutions are generally even better the longer the investment time horizon is. There has been a considerable rise in the penetration of securities among 18 to 24-year-olds. As of now, those in this age group have already invested 32 percent of their 3a assets in securities safekeeping accounts.
Considerable rise in pension fund contributions in recent years
Insured workers can also make voluntary contributions to the second pillar, their employee benefits insurance, within a limited framework. Firstly, certain pension funds allow workers to choose whether they would like to pay higher savings contributions for their pensionable salary than those provided for under the standard plan. Among pension funds with such options, an average of one out of every four insured individuals decides in favor of this. Since higher contributions serve to reduce net wages, they may also result in tax savings depending on the circumstances.
Pension funds also frequently offer the option of a voluntary purchase, which can be used to build additional retirement capital and close pension gaps. In 2020, active insured workers deposited one-time contributions and purchases with Swiss pension funds worth a total of over CHF 6.8 billion. This is over two thirds more than in 2010.
Pension planning: Trend towards more lump-sum withdrawals
Pension fund assets often represent the largest part of a person's assets at the end of their working life. It is therefore important to decide whether to withdraw them as a lump sum, in the form of a monthly pension, or as a mixed solution.
The share of those exclusively drawing a pension has decreased slightly in recent years, while that of pure lump-sum withdrawals has increased. According to provisional figures for 2020, 54 percent of those making withdrawals for the first time from pension funds without vested benefits institutions received at least part of their benefits as a lump sum. Of these, 34 percent exclusively received a lump sum and 20 percent opted for a combination of lump sum and pension. The remaining 46 percent, roughly half of the insured individuals, opted to draw only the monthly pension, women slightly more frequently than men.