Women and Pension Planning

The pitfalls of "pension gender gaps"

There is often a large gap between the pensions of men and women in Switzerland. This happens, for example, when mothers maternity leave take a break in their employment to take care of their families. This is more often the case in the generation that is now thinking about retirement. Reducing their employment to part-time or returning to work at a low percentage means that many women earn less than CHF 21,510 and are therefore not insured by the pension fund. Only employees with wages above this threshold are insured in a pension fund.

If this threshold is not reached, many women have gaps in their pension fund, which can have a negative impact on their pension in old age. Another stumbling block can be the so-called coordination deduction. The coordination deduction of CHF 25,095 is deducted from the annual salary. For example, someone who earns CHF 50,000 a year therefore only has an insured salary of CHF 24,905. However, the insured salary is decisive for the contributions that employees and employers make. At the same time, retirement and survivors' benefits are also calculated on this basis. Progressive pension funds try to compensate for this disadvantage of part-time employees by making the coordination deduction in proportion to the percentage of employment. Here it is worth consulting the insurance certificate.

How to close those gaps

One possibility is to purchase additional pension benefits. The purchase potential can be looked up on the pension fund statement. The purchase increases the pension fund capital and improves the pension benefits. If there are sufficient funds available to stock up your  pension fund, it is best to spread the amount you wish to pay in over several years. This breaks tax progression and reduces the tax burden. With the increase of the capital in the pension fund, the pension benefits in old age and the survivors' benefits also increase. In some cases however, it has to be said that pensions can decrease as a result of increasing life expectancy. A lump-sum withdrawal may therefore need to be considered.

An alternative purchasing additional pension benefits is to invest in private provisions (in Switzerland: third pillar) . Anyone who is affiliated with a pension fund can pay in the full amount of the 'small pillar 3a' of currently CHF 6,883 per year. Those who earn less and are therefore not affiliated with a pension fund or who are self-employed can pay in 20% of their income up to a maximum of CHF 34,416 per year. Here, too, there is a tax effect in addition to better pension provision.