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

Now, that being said – this is a blogpost from the perspective of a Financial Consultant, so let’s talk figures. A latest study from the “Zurich Office for Youth”, Credit Suisse and the OECD shows that the average direct cost of raising a child in Switzerland for a couple is 22’200 CHF per year, meaning over 18 years a direct cost of 400’000 CHF.

Beware, this does not include school fees – so if you think of sending little Heidi or little Einstein (I know he was German, but he became Swiss later on, so it still works) this amount can go up quite significantly.

Coming back to the figure of 400’000 CHF, it is split as follow:

• 32% on accommodation (the more children you have, the more this number goes down in terms of proportion of income)

• 18% on day-care (unfortunately Swiss day-care is the most expensive in the world)

• 17% on food (such costs go up as your baby becomes a teenager that can literally eat anything without putting on weight – I know, so unfair…)

• 13% for healthcare

• 6% on clothing (again, as you can imagine dressing a 13 – 18 year old is much more expensive than a baby considering you pay mainly for the brands our youngsters/teens so desperately need to forge an identity)

• 1% for telecoms (only considers here children above 13 years old – so if little Heidi comes asking for a phone at 10 years old, don’t hesitate – it’s not in the official budget from the Zurich Office – and if you can get away with this explanation, you’ll know as a bonus you have an aspiring public official in the family)

• 14% on entertainment & miscellaneous incidentals and accidentals

Now, this is where I must promote what we do before letting you go. So here it is: you can’t plan for the above “ongoing cost” of raising a child, but you can certainly make sure you plan for higher education needs so when university cost of living and tuition “hits you”, you are ready for it …

Until then, we love our children …

This thought process is unfortunately misleading and creates a lot of initial disillusions.

Let’s start with some facts and figures:

• Swiss Population: 8.5 million
• % of foreigners: 25%
• Unemployment rate – around 4%
• Active population: app. 4.5 million
• % of employees earning more than CHF 125’000 per year: 10% (or 450’000 people)

Let’s now focus on a few key topics:

1. COST OF LIFE: let’s keep it simple. Go shop in Migros or COOP, and then drive 15 min over the French or German border, then compare the cost of groceries. You will notice most items are for some twice cheaper, but at least 50% cheaper. In general, cost of living in Switzerland compared to neighbouring countries is 50% more expensive.

2. SOCIAL CONTRIBUTIONS – AVS: any employee earning an income above CHF 85’000 approximately is paying what some consider a 5% extra tax on their income. Indeed, the benefits derived from the state pension system are similar to employees earning CHF 300’000 CHF a year, rather than the one earning CHF 85’000 a year.

3. INCOME TAX: Swiss residents pay taxes on their income, like anywhere else in Europe. Unfortunately, there is no flat tax like in many other European countries. Unlike any other country, Switzerland also taxes the fictitious rental income from property owners, who are unlucky enough to live in their own home. Taxes very quickly exceed the 40% marginal income tax rate for couples earning above CHF 250’000 a year.

4. WEALTH TAX: Switzerland is one of the very few countries in the world still taxing wealth. Such tax has been wildly considered inefficient and therefore cancelled or amended by many countries, including France and Sweden. Geneva has the highest rate, with a 1% tax levied.

5. CAPITAL GAINS TAX = 0: on this front, Switzerland is doing very well, hence the reason many wealthy individuals have decided to settle down in Switzerland. All things considered; this does not really make a difference for the common man.

To summarize, if you consider yourself part of the upper Swiss middle class, with a comfortable lifestyle and regular monthly saving potential, the main difference between Switzerland and other European countries is that whilst it is hard to save EUR 1’000 per month when working in France or Germany, it is very easy to do so in Switzerland. Any monies saved consistently in Switzerland over the mid-term can get you a long way when back in your home country. It is not uncommon to see a couple working in Switzerland for 5-10 years, save money and buy a big house outright (without mortgage) when returning back to their country of origin.

Food for thought.