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Cash: Ms. Weisser, what is the status of the pension system in Switzerland?
Veronica Weisser: Basically with three pillars in terms of structure we have a good system with the basics of something that will last for the long term. However, in international comparison we are in the middle ground; neither too good nor too bad. We missed some developments.
What do you mean by this?
Each pillar has its own challenges. In the first column, we promised ourselves to collect pensions from children we do not have. In the second column, we pay pensions from capital that does not belong to us. In the third column, we cannot save enough because no one forces us. We must address these challenges with a forward-looking perspective.
What is the most important basis of the Swiss pension provision?
A three-legged chair must have all three legs. However, in terms of the size of the amounts paid, the second column dominates. AHV, on the other hand, has a very important role in terms of basic security. In the third pillar we have the most freedom as individuals.
Although inflation compensation works very well there, politically there are always efforts to strengthen the first pillar, for example…
To put it bluntly, AHV pensions are structurally rising more than inflation in the long run. Therefore, our purchasing power is constantly increasing. The purchasing power of minimum pensions is now six times higher than in 1948, when the AHV was introduced. Additionally, we no longer pay these pensions for an average of 24 years instead of thirteen years. We have seen a strong increase in pensions without adjusting the financing of these pensions. Existing promises need to be financed before pensions can be expanded further.
Why don’t reforms remain in the majority in Switzerland, despite foreseeable fiscal problems?
The gap can be closed in three ways. By reducing pensions, you reduce retirees’ wealth. This is often done abroad but is probably not politically possible in Switzerland. Another possibility is that the wealth of the younger generation is decreasing. That’s what we’ve been doing so far, and given the makeup of the electorate, that’s probably what has the best chance politically. Or you can postpone your retirement age. Then you can protect the well-being of all generations. I think we will work longer. But we are probably not yet at the point where there is a political majority on this issue.
Does financial pressure need to increase further?
No, the age structure needs to change further. Already two-thirds of those voting today are over the age of 50. If two-thirds are over 60, they will definitely vote to raise the retirement age. Ten years from now this won’t be a problem.
Those who suffer are children…
Yes. But it should also be said that young people will stay in retirement for longer. Despite the fact that the retirement age is rising.
The retirement age will rise even higher in the future. How should today’s 20-year-olds plan for retirement?
There is a simple rule that every teenager should use if possible. Because this way you will be on the safe side and you can relax a lot. Starting with your first salary, 10 to 15 percent of your gross salary should be invested in stocks, especially through the third column. This means that it is very likely that you will be able to maintain your standard of living in old age.
What applies to older people?
In middle age, you need to make sure once again that you are on the right track. You should have several 3a accounts where you invest in stocks. From around 50,000 francs onwards, additional accounts make sense so that you can withdraw them later in a gradual manner and in the best possible way for tax purposes. A will, prenup, advance directive, living will or custody order is also an important part of foster care.
What happens if you neglect the will?
A widow or widower may find himself in a situation where real estate must be sold, for example, to pay off children’s debts.
Do you have any other tips?
Overall health and further education are absolutely crucial. Without this, you will be less attractive in the job market when you are 60 or 65. If you unintentionally have to retire early, it costs a lot of money. The last tip is about relationship.
What do you want to say?
For most people, it makes sense to finish work half an hour early and go out to buy your partner a bouquet of flowers. Because relationship problems cost a lot of money, especially when children are involved. Long-term, positive relationships are good for your health and finances.
Childcare can be a disadvantage if you’re not working. What should men and women pay attention to?
The caring role is poorly reflected in our pension system. This is especially true for the second and third columns. Therefore, the caring role is associated with less pension. Politics probably won’t solve this problem so quickly. Therefore, as individuals, we also need to assume a certain level of personal responsibility.
The problem particularly affects unmarried couples…
If both partners are not working at least 70 percent of the time, things look bad for the person working less. You are often told how you can protect yourself as a cohabiting couple. But this is very expensive and so it is often not done enough. Romantic ideas aside, getting married in Switzerland is still the best solution.
Can you really relax when you get married?
A husband and wife is not a retirement plan. More than 40 percent of marriages fail. Therefore, both must ultimately be able to fend for themselves. Long breaks from work are always problematic if you can no longer reach the appropriate wage level when you start again.
But after all, everyone has to deal with the increasingly important private service?
We have had only one major pension reform in 25 years. We cannot rely on political solutions to all problems. The responsibility lies with us, so each individual should think about what kind of standard of living they want to achieve in old age and act accordingly.
They advocate saving money on stocks. What should I pay attention to?
If stocks weren’t volatile, they wouldn’t provide higher returns than other investments. For this reason, it is important to wear a psychological helmet when buying stocks, so that you do not make wrong decisions, that is, selling, during the correction phase. A good investor sees the crisis as an opportunity and buys.
What advice would you give to less experienced investors?
Gradual investment. You should automatically invest in a diversified portfolio of stocks every month.
What are the advantages of stocks over savings accounts?
The impact of compound interest on stocks is often underestimated. Anyone who invests 200 francs a month in stocks from the age of 20 for 45 years will ultimately have invested around 100,000 francs. The interest on a savings account with 1 percent interest is approximately 25,000 francs. With a stock investment yielding an annual return of 5 percent, you would get a return of over 200,000 francs. The financial market prepares retirement provisions for you.
So should you only save with shares in Pillar 3a?
As long as you have an investment horizon of at least 10 years, you want to use the money. But that doesn’t mean you should sell all your stocks at 55. The money in column 3a is especially important for later retirement years because there is no inflation adjustment in column 2.
What do you think about pension fund purchases? This also provides tax advantages.
The money deposited there is locked. And if you fall into a pension fund that needs to be restructured, then the returns are also used for restructuring. If you are expected to stay in the company from the age of 50, you can purchase from a healthy retirement fund in the second column. But at a young age, this becomes less meaningful due to the lack of visibility into the quality of future retirement funds.
But as we all know, should you avoid early retirement?
The pension fund is responsible for one-third of the pension you have worked in the last 5 years before your retirement age. This is due to the reduced conversion rate to early retirement and the lack of premiums and interest. Within three years there is 20 to 25 percent less in the second column. It makes more sense to retire gradually. This also has tax advantages when attracting capital.
Dr. Veronica Weisser is an economist, head of the UBS Vorsorge Innovation Center, and member of the UBS Sustainability and Impact Institute. Previously, he headed Swiss macroeconomic and sector analysis as well as the “Pensions and Retirement Solutions” pension sector in UBS’s Chief Investment Office and was responsible for UBS Switzerland’s pension strategy.
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
