11 June 2015, text: Philipp Schüpbach, photo: stm / photocase
Parents who reduce their work hours are also reducing their pension benefits. For example, if they were to become disabled or die from an illness or accident, their pension fund would be smaller because their insured salary is now smaller. It affects old-age savings, too. They won’t be entitled to the same pension as before.
They can’t prevent it entirely, but they can plug the hole with an alternative solution. Extra voluntary contributions to the pension fund are a good way to close the old-age savings gap, assuming they haven’t already paid in the maximum amount. These contributions – often called “purchases” – are attractive because they’re fully deductible from taxable income.
An alternative is pillar 3a in order to save for old age and at the same time protect yourself against the risk of unemployment and death. This can be, for example, with a tax-priviledged fund policy such as the Helvetia Performance Plan. Another possibility would be the Helvetia Garantee Plan, which is also invested in markets worldwide, but does not include capital protection.
Then, both in cases of invalidity or death or also old age, the person would only have a claim to benefits from the 1st pillar – i.e. DI or alternatively OASI. They can only tap into 1st pillar savings if they have vested benefits capital left in a 2nd pillar plan when they exit gainful employment.
First, it’s very important to contribute any vested benefits capital to the new pension fund. Also, they should check insurance policies for overinsurance and adjust them where possible. This can relate to disability pensions or the inclusion of accident risk in their health insurance. With a little bit of attention, they can get the most out of their insurance premiums.
Finances tend to be tight for single parents. That’s why they need a detailed savings plan laying out the time frame, investments and amount of money they have available to build up their occupational retirement benefits. Remember, they are not just saving up for old age, but also covering the risks of death and disability.
If an expectant mother is employed at the time of her baby’s birth, she will receive an earnings replacement under the Loss of Earnings Compensation Act (LECA) or through the maternity allowance. During this period, she remains covered under the occupational benefit scheme and is entitled to receive benefits from the pension fund.
Children are entitled to certain benefits under the 1st and 2nd pillars. They can receive a child’s pension if their parent becomes disabled or an orphan’s pension if the parent dies. The benefits, in other words, are better for people who have children. In some cases, you might even be able to reduce or cancel other insurance policies if you’re over covered. The children themselves, however, are badly insured if they ever become disabled. That’s something that absolutely has to be addressed by parents and pension advisors. Luckily, the risk can be covered with a monthly investment of around CHF 60.
When I talk to people about to start a family, I always advise them to have an expert thoroughly analyse their situation. This kind of analysis – preferably supplemented with charts – will give them valuable information for making reasonable and sustainable decisions. If they want to talk to Helvetia, they can reach out to a nearby General or Principal Agency.
Reto Kleiner is Head Key Account Management at Private Pension Plans. He works at the head office of Helvetia Switzerland in Basel.