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If you are planning to reside in Switzerland after your retirement, you might be concerned about being able to maintain a comfortable lifestyle. But there are ways to achieve this — if you plan well.
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If you worry about how much money you will have once you retire, and whether it will be enough to live well in an expensive country like Switzerland, you are not alone: various studies have found that pensions are among the top-10 issues of concern to the country’s population.
And they have a good reason to worry because Switzerland's rising life expectancy — one of the highest in the world — is weakening the pension system. That's because the longer a person lives, the longer they will rely on pension money.
Faced with the dilemma of how to ‘stretch out’ the pension funds and ensure they don’t run out soon, Switzerland's government has proposed to reduce, by about 0.8 percent, the amount of the second-pillar occupational pensions. (Read more about it below).
However, opponents of the proposed legislation have collected over 77,000 signatures — more than the 50,000 required by law — to launch a national vote on this issue because, they argue, such a drop in income would impact the retirees' standard of living.
Experts, on the other hand, are in favour of the reform, which they consider essential to ensure the sustainability of the second pillar pensions.
The referendum on this issue will be held on March 3rd, 2024.
One measure was already approved by the voters in a previous referendum: raising the retirement age for women from the current 64 to 65, same as for men. The change will be implemented gradually from 2025 to 2028.
The extra year of work will ensure that more money flows into pension coffers, while fewer people draw from the fund.
These challenges notwithstanding, will you be able to afford to live in Switzerland once you retire?
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The answer to this question depends on what kind of pension you have.
Switzerland’s system is based on three pillars.
The first, AHV in German and AVS in French and Italian, is a state pension intended to cover basic needs in retirement.
Currently, the maximum first-pillar pension is 2,450 francs a month for a single person and 3,675 francs for a couple — amounts based on a working life (and mandatory contributions to the scheme) spanning 44 years (from 20 to 65 years of age).
People who have not been employed for as long will see their AHV / AVS payments lowered.
The minimum pension is 1,225 francs per month.
You may be wondering why the set amounts are the same for everyone, regardless of how much people earned while they were still working.
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That’s because the Swiss system is not based on income but on the principle of solidarity between rich and poor.
As the Swiss government explains, “those who earn a lot pay in more than they will later receive in pension payments. Those who are financially less well off benefit from this, receiving more in pension payments than they contributed."
This is a similar approach to that practiced by the health insurance system, where all the people of the same age group living in the same canton pay the same premium, rather than different rates based on their income or other personal circumstances. This means that in an emergency there are enough resources available to give someone the help they need.
READ ALSO: How the Swiss health insurance system is based on solidarity
This kind of ‘one for all’ approach takes precedence over the ‘to each his own’ attitude prevalent in many other countries.
So can you live off your AHV / AVS payments?
In theory at least, a couple with a monthly income of 3,675 francs could possibly make ends meet IF they live frugally in an inexpensive area.
They would likely be eligible for health insurance subsidies, which would certainly help.
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But a single person with only 2,450 francs a month, and especially one who gets only 1,225 francs, would find it extremely difficult to live on that money — unless they get government help in the form of healthcare and housing subsidies.
However, such a situation — having to support themselves only on the AHV / AVS pension — is extremely unlikely to occur in Switzerland. Only people who have never worked would find themselves in such dire circumstances.
And that brings us to the second pillar, the occupational pension.
It is compulsory for employees over 25 years of age who earn more than 21,300 francs a year.
They and their employer each pay half of the second-pillar contributions.
The more they contribute to this pension, the more the will receive in retirement.
Together, the first two pillars aim to achieve a total pension income of 50 to 70 percent of pre-retirement earnings.
They will receive a minimum of 6.8 percent of the retirement savings per year (unless the above-mentioned law is enacted, in which case it will go down to 6 percent).
As an example, people who have saved 400,000 francs in their occupational pension throughout their working life, will receive 27,200 a year, or 2,267 a month. Add this to your AHV / AVS income, and life will become more bearable.
And then there is the third pillar — savings
Unlike the first two pillars, this one is not obligatory, but highly recommended to ensure a financially comfortable retirement.
According to official statistics, nearly 70 percent of people in Switzerland have this financial cushion.
It includes a variety of saving plans and investments that you make during your working years to be used after you retire.
In general, you can withdraw your third-pillar savings no earlier than five years before the statutory retirement age, though there are some exceptions to this rule — for instance, if you want to purchase a house.
If you add this pension on top of the other two, you can live pretty comfortably after you retire.
READ ALSO: How does the Swiss pension system work - and how much will I receive