Can you rely on your state pension?
Julia’s state pension in the UK has recently been forecast at £9,371 a year – just under £800 a month, from the age of 67. As Julia owns a house, she does not have to pay rent. That means that this would be enough to live on, but would she be able to spend her retirement as she wants to?
Long ago, Julia concluded that she should not rely on the state pension for retirement income. The level of state pension is frequently reviewed, and the projected amount could just as easily go down as up. Life in retirement could be severely limited if she did not make other plans. So, she started to pay into her occupational pension in her mid-20’s, has a private pension and is working on generating passive income streams as well. Although some years away from ‘retirement age’, she is close to having the savings that she needs for when she does retire.
In Switzerland, where Keren lives, they have a formal ‘three pillars’ system. Although this is different to the arrangements in the UK, it is a useful model to consider when retirement planning in either country.
First Pillar (State or National Fund)
It is also called ‘the compulsory state pension’ and is similar to the state pension in the UK. It is designed to provide a basic standard of living after retirement, which is currently 64 for women and 65 for men in Switzerland. In both countries, it is paid for from social security contributions (called National Insurance in the UK). The current maximum amount for a single person is 28,680 CHF a year and the minimum amount is 14,340 CHF.
Second Pillar (Professional)
This pillar is for professional/occupational pensions. Funds are managed by a pension provider, not the state. In both countries, there is some form of mandatory contribution by employers and employees, and contributions are tax-deductible.
This pillar is designed to provide a standard of living over and above the very basic standard covered by the first pillar.
Third Pillar (Private)
The third pillar (private pensions) is optional and complements the first two pillars. In both countries, contributions to private pensions are tax-deductible.
In the UK, there are pension contribution limits for occupational and private pensions. In Switzerland, there are two options under the third pillar, one of which has no contribution limits.
The funds of the third pillar cover additional expenses during retirement. What is unique to Switzerland compared to other countries is that you have the option to withdraw your second and third pillar, should you leave.
Official information about the Swiss pension system can be found here: https://www.ch.ch/en/retirement-provision-system/ and UK/Switzerland new social security agreement.
For the UK, follow these links to find out:
What your state pension age is: https://www.gov.uk/state-pension-age
What your state pension projection is: https://www.gov.uk/new-state-pension
The government provides a free guidance service here: https://www.moneyhelper.org.uk/en
Wherever you live in the world, it is worth understanding your local pension system. Do you have access to a state pension? What do you have to do to be eligible for it? Are there inducements such as tax breaks for paying into an occupational or personal pension? If you do pay into a pension, what restrictions are there on the funds, for example only being able to access them at retirement age?
In your country, there may also be tax-efficient savings and investment schemes, such as ISA’s in the UK, that you can also use to save for retirement.
Although pensions are an important part of your financial planning mix, we don’t just recommend paying as much as possible into them. You should start your financial planning with some life planning and understand how much money you need in your bucket before thinking about individual financial solutions.
Pension systems are complex. If you need professional advice about the Swiss pensions system and learn how you can benefit from it, please contact Keren at: firstname.lastname@example.org
She can explain more about how it works and how to make the most of it, in line with your personal ambitions.
If you are based in the UK, Pension Wise is a government service that provides free, impartial guidance about your pension options.
We are always keen to share stories from other women about their experiences of financial planning. Do you have a story to share about retirement planning or pension provision that other women could learn from? If so, please contact Julia at email@example.com or Keren at firstname.lastname@example.org. We will, of course, keep your identity confidential if you choose.