Private pension provision for women

How women can ensure long-term financial coverage with private pension provision

Because women are living longer and longer and the first and second pillars do not guarantee financial protection upon retirement, private pension provision through the third pillar is essential. 

This issue is especially important for women. That is because they generally retire earlier, have earned less on average, were employed intermittently, and live longer. The latter is demonstrated in the higher life expectancy for women. According to statistics, women live to an age of 84 years – and the average is on the rise. Some people are already living to be significantly older.

What does this mean for women in concrete numbers?

At present, women retire at the age of 64; men leave the workforce one year later. Once a person begins drawing a pension, he or she might live for another 30 years. Compare that figure to the roughly 40 to 45 years during which the retiree paid into the system. In other words, pension contributions from approximately four decades of gainful employment will need to be sufficient for a person to live off them for three decades.

How much would a woman theoretically have to save?

Simply put, way too much. During her 40 years of work, a woman would have to set aside about 38% of her income as retirement capital in order to have adequate retirement provision. Yet, hardly anybody achieves a savings rate that high. Nevertheless, most residents of Switzerland are protected financially upon retirement even without being able to save large amounts of money.  

Women who wish to have a nest egg big enough for their retirement should also invest in private pension provision.

How is this financial protection possible?

Three factors help provide the necessary level of security:

  1. Accrued retirement capital produces income, either in the form of interest or from increases in the value on the securities markets. The sooner you begin putting capital aside, the longer you can draw income from it.
  2. Pension systems have profited from compound interest in past decades. For example, a person who saves 1,000 Swiss francs and receives 3% interest will have 1,030 Swiss francs in their account one year later. Two years later, the savings will amount to 1,061 Swiss francs, and after 30 years, the account will have grown to 2,427 Swiss francs. Of that amount, 527 Swiss francs, nearly 28% of the increase, can be attributed to the effect of compound interest.
  3. Since women have a higher life expectancy, they often receive more than one inheritance. First, they receive what their parents bequeath to them. Second, they often receive an inheritance from their husbands, who, according to statistics, pass away five years before their wives.

So, is it enough for women to have the first and second pillars as a pension?

Women who wish to have a nest egg big enough to retire on should also invest in the third pillar, private pension provision, and do so as early as possible, regularly, and consistently. That is because the benefits from the government-mandated retirement savings plans in the first and second pillars are hardly sufficient to maintain an individual's accustomed standard of living upon retirement. This additional provision is crucial, especially in times of low interest rates, because there will be no compound interest effect until rates begin to rise. Current interest rates are almost at 0%, and there is no indication that things are going to change. That is precisely why women should also save more because the interest earned in the past is no longer available.