Ladies, it is a fact that we are more likely to sacrifice our careers to take care of our children or to take care of the home. But what most don’t realise is that sacrificing our careers either through a career break or working hours reduction impacts our second pillar and benefits much more than they first thought.
Let’s pick Lauren as an example. She is 35, married and is currently earning 100,000 CHF per year. She is pregnant and wants to understand how the 60% contract when she returns to work after maternity leave is going to impact her pension provision and associated benefits.
Current Situation:
She earns 100,000 CHF per year. The coordination deduction is currently 25,095 CHF (this reduction is to coordinate the first and second pillars) therefore the coordinated salary is:
- 100,000- 25,095 = 74,905 CHF
As she is 35, a minimum of 10% is paid into her second pillar therefore 7,490 CHF is being contributed on an annual basis.
60% Contract:
60,000 CHF earnings per year. Lets assume the coordination deduction hasn’t increased since she returned to work, therefore the coordinated salary is:
- 60,000 – 25,095 = 34,905 CHF
She is now 36 and still in the 10% category so 3,490 CHF is being contributed to her second pillar on an annual basis.
Impact:
Lauren’s Second Pillar Retirement Savings
Although Lauren has reduced her contract by 40%, her annual second pillar contributions have decreased by 53%.
Lauren’s Second Pillar Insurable Benefits:
Children’s disability pension, children’s orphans’ pension, Lauren’s disability pension and the survivor’s pension in place for her husband will all also decrease as these are based on the new coordinated salary.
What does this mean for her and her family?
Lauren will be the main carer for their child and if Lauren was to become sick or die the family would have less protection in place as this is calculated on the new lower figure under the new contract.
At a time when they need more protection in place, they will have less.
What can be done?
In Lauren’s case she started a third pillar with insurance to protect her family on her death. Now if she dies before retirement the family will receive a 200,000 CHF lump sum and she is using the savings provision to save for her own retirement in line with her attitude to risk.
Of course, if Lauren’s circumstances were different my recommendations could have also been different – but that’s the benefit of a financial review
