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Pension calculations within the 3-pillar system
Every employee wants to have certainty when it comes to pension provisions available come retirement age. It's not just about the certainty of financial security, but also allows for firm planning about changes that need to be implemented come retirement. A forward-looking approach to pension provisions forms the foundation of financial freedom in old age.
Pension calculations and the 3-pillar system
The amount of retirement pension available is made up of the three pillars of the pre-pension scheme. These include state insurance (AHV), the pension fund of occupational pensions and private pension payments (the 3rd pillar). While the first pillar is obligatory for everyone, the second pillar (pension fund) is open to those in self-employment but isn't compulsory. For employees, the occupational pension obligation is mandatory, with an upper and lower limit for the insured salary:
- Minimum insured salary per year: CHF 3550 (as of 2019)
- Maximum insured salary per year: CHF 60,435 (as of 2019)
The income relevant to occupational pensions must also be offset by the so-called coordination deduction. This is deducted from the gross salary for the annuity calculation for a year to match the insured amount in the second pillar from the first pillar.
Those who are insured in the second pillar receive the annual pre-qualification document. This includes, in addition to other things, the current retirement assets and retirement assets in the ordinary retirement age. In addition, ID card lists for the retirement pension with early retirement. In order to calculate a pension, age credits, interest rates and retirement pension are always included. A minimum conversion rate is used for the annual disbursement of the retirement savings (as of 2019, this stands at 6.8%).
Accurately calculating pensions
The combination of state and occupational pensions is intended to enable people in the retirement age have a comparable standard of living to what they have enjoyed throughout their working life. A retirement pension equates to around 60% of the last age earned. Whoever receives their pension exclusively from either the first or second pillar must accept this income gap.
In order to close this gap and provide more provisions during retirement age, private provision is required with the third pillar. Precautions can be made either in pillar 3a (bound), or column 3b (free). In the case of tied pension provision, the state supports pension recipients by means of voluntary allowances which can be deducted from taxable income. The tax law distinguishes between the small pillar for those who belong to a pension fund and a large pillar for persons without a pension fund.
MoneyPark's pillar 3a calculator helps you to include remuneration, including tax benefits and interest in your pension calculation.
There are a number of investment and insurance products, including life and annuity insurance, at your disposal in pillar 3a as well as in pillar 3b. These can be obtained in the form of regular disbursements or as a one-off capital payment. In contrast to pillar 3b, pillar 3a is exclusively for old-age provision and is normally up five years before the statutory pension age, although there are exceptions.
MoneyPark works with you to implement a comprehensive age and risk management plan to best prepare you for retirement and all of its financial implications. An overview of offers and options, regular annuity calculations and comprehensive information about options and tax advantages available gives you the best possible oversight of what's to come and how to best plan for your retirement and later life. Get in touch with the team at MoneyPark today to arrange a consultation and face-to-face meeting to talk to one of our friendly advisor and how you can make plans for the future and enjoy financial freedom in later life.
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