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

We might disagree on a lot of fundamental questions of life but when it comes to 2nd pillars, we all sing from the same hymn sheet: the younger you are, the more of a mirage your 2nd pillar is, especially when it comes to your projected level of income / annuity at retirement.

Let us take the example of Daniel, a 38-year-old individual who works for Unilever, he has been in Switzerland for two years and earns CHF200’000 a year. When looking at his 2nd pillar statement, he can see that if he remains with Unilever with a similar salary his pension pot will be worth CHF2’000’000 at 65 years old or CHF1’500’000 at 58 years old. There are four key factors to consider, some more scientific than others.

Factor 1: do you see a lot of people with grey hair in your company?

On paper, he is a millionaire, but in the real world, he should primarily wonder: what if I lose my job at 50 years old instead of retiring at 58? If he retires at 50 it is safe to say his pension pot will be barely worth CHF800’000. Many international companies gently push their most “expensive” employees out before retirement. They therefore do not enjoy the higher contributions they and the company should make on their salary as they get older. They also do not benefit from the compound interest generated on their pension pot over time.

Factor 2: What growth rate is guaranteed on my pension pot?

In 2003, the minimum growth rate guaranteed was 3.25%. Projections were shown using this number back then. Today, it is 1% – projections today are now shown using this figure. Therefore, if Daniel had been in Switzerland in 2003 instead and looked at his pension projection with a 3.25% growth rate on his contributions instead of the current 1%, this would have made a significant difference over time. This rate is likely to go down to 0.75% going forward, lowering even further Daniel’s estimated pension pot at retirement.

Factor 3: What growth rate is achieved on my pension pot?

Daniel’s pension fund uses a 2% growth rate to project his expected pension pot at early retirement. What if the growth rate actually achieved is 1%? This will significantly impact Daniel’s pension pot.

Factor 4: What conversion rate is considered on my pension pot?

In French we say: “Un tiens vaut mieux que deux tu l’auras” (having something now is better than the possibility of having more later) – some of you might think “typical French”, but there is some truth in that proverb.

Therefore, when looking at your 2nd pillar statements, always remember it is less and less likely over the years for the number you see to be real, and therefore do not fall into the “mirage” trap, keep on efficiently saving 15 to 20% of your disposable income and your future financial security is guaranteed.

Setting aside love and feelings (we are a financial advisory firm after all), our consultants usually get the same question from our clients, “I have heard I will pay more taxes if I get married, is it true?”.

There are 5 parts to that questions: Administration, 1st pillar, 2nd pillar, your global income tax rate & Inheritance tax. As expected, the answer is both yes and no, depending on how restrictive you are with your answer and the structure of your earnings. Let’s look at why.

1. Administration: Married = 1 point
   Being married simplifies a lot of the day to day life. Consider just filing your taxes. Married couples file one tax return, unmarried couples have to file separate returns. This advantage, in case of divorce can also become a real Pandora’s box.
2. 1st Pillar: Unmarried couples = 1 point
   A full annuity for a couple after 43/44 years of contribution will never exceed 150% of a standard annuity for one person. Therefore, there is certainly a disadvantage for married couples in this regard.
3. 2nd Pillar: Married = 1 point
   Many pension foundations require at least 5 years of proven common living to offer the same benefits unmarried couples have than married ones. Often, too many foundations offer no benefits at all to unmarried couples, resulting in a significant loss should the worst happen to one of the members of the couple.
4. Global Income tax rate: We have a tie
   Depending on your canton of residence, the splitting of your income (50-50 or 70-30) and your total common revenue, you might pay more taxes should you get married. In general, the more you earn, the less beneficial it is to be married. For a combined income above CHF300’000, it is often better to not be married.
5. Inheritance Tax: Married = 1 point
   Forced heirship exist in Switzerland, it is therefore more difficult to protect a partner than a wife. Also, whilst there is virtually no taxes between spouses (up to 6% in Geneva above CHF500’000), taxes amount to 26% above CHF100’000 for partners.

All in all, if you are ready to pop the question, don’t let taxes prevent you from doing so as it is not a good enough excuse!