Increase in Part-Time Work Puts Pension System to the Test
Part-time work is especially prevalent in Switzerland, particularly among women. However, it has also shown a consistent increase among men in recent years. This development poses a serious challenge to the current pension system.
Today, more than one in three employees in Switzerland works part-time. Levels of employment of less than 90% are recognized as being more prevalent among women: In 2015, approximately 60% of employed women worked part-time and the share of men working part-time was only 15.5%. However, an upward trend among men can currently be observed. As shown by Credit Suisse economists in their recently published pension fund study, the rate of men in part-time work increased in all age groups between 2006 and 2015 (compare figure). The desire for a better work-life balance or to have more time for children often means that both partners reduce their level of employment. The rise in part-time work among young employees of both genders is also notable. One reason for this is longer time spent in education. Often, young people have a job on a part time or temporary basis in addition to studying.
Part-Time Work as a Challenge for Retirement Provision
From a pension point of view, the rising prevalence of part-time work and other flexible types of work (e.g. temporary positions, multiple part-time jobs with different employers, freelance activities) is not without problems. More than three quarters of the pension fund representatives surveyed as part of the Credit Suisse study identified working models such as these as one of the largest social challenges for the Swiss retirement provision system. Part-time work reduces income and, in doing so, the pension share of the 1st and 2nd pillars. In employee benefits insurance, the entry threshold and coordination deduction in particular have detrimental results for part-time workers. In addition, those who are self-employed with no employees are exempt from the obligation to pay contributions in the 2nd pillar. Those who are employed in such employment relationships also run the risk of not being able to sufficiently provide for old age without additional private pensions (e.g. saving in pillar 3a).
Part-Time Work Particularly Detrimental for Lower Wages
In accordance with the current law, only those who earn an annual salary of more than CHF 21,150 from an employer are subject to compulsory employee benefits insurance. However, if this entry threshold is exceeded overall, but in the context of holding multiple jobs, then income as a whole is generally not taken into account in the 2nd pillar. To determine the pensionable salary, a sum referred to as the coordination deduction is also deducted from the annual salary. This currently amounts to CHF 24,675 and is also fixed for part-time employment, provided that the respective pension fund regulations do not stipulate otherwise. As the following case example shows, the coordination deduction means that wage cuts resulting from part-time work have a strong above-average effect on 2nd pillar contributions and also on accrued retirement capital. The negative effect has a stronger impact on those with lower wages.
Lower salaries at a disadvantage in the 2nd pillar as a result of the coordination deduction
|Example 1||Example 2||Example 3|
|Gross salary for a level of employment of 100%||50,000||75,000||100,000|
|Gross salary for a level of employment of 50%||25,000||37,500||50,000|
|Fixed coordination deduction||24,675||24,675||24,675|
|Pensionable salary for a level of employment of 100%||25,325||50,325||75,325|
|Pensionable salary for a level of employment of 50%||3,525*||12,825||25,325|
|Retirement credit for a level of employment of 100%**||2,533||5,033||7,533|
|Retirement credit for a level of employment of 50%**||353||1,283||2,533|
|Difference between retirement credits||-86%||-75%||-66%|
* With gross wages of between CHF 21,151 and CHF 28,200, the pensionable salary is fixed at CHF 3,525
** Assumption: 10% of the pensionable salary for a 40-year-old
Source: Federal Social Insurance Office, Credit Suisse
Supplement Retirement Capital with Private Pension
In view of pension losses in the 1st and 2nd pillars, it is even more important for people with a reduced level of employment to supplement their retirement capital with private savings early on in order to have a sufficient financial cushion to fall back on in retirement. Making regular payments of small sums into the 3rd pillar is also worthwhile.