Finally get to grips with the pension certificate: here’s how

“Pension certificate” may sound a bit meaningless. But if we look closer, we come to realize how important what’s in this annual pension document really is. It shows the status of your pension fund assets, as well as your projected old-age pension.

Do you happen to know right now exactly how much money you will get in old age, in the event of disability, or how much you will leave behind when you’re gone? Probably not – much like many Swiss citizens still in the middle of their professional lives.

The pension fund statement also provides key indications for planning early retirement, going into self-employment or withdrawing money for that long-awaited dream house. It is also good to know how well covered you are by your pension fund against the risks of old-age, death and disability. What benefits will you receive in each scenario? Is it worth taking further steps for your own financial protection? We make sense of pension fund-related terminology.

Key terminology explained in simple terms

In this guide, we will go through the most common terms so that you are able to read and interpret your pension certificate properly in future. Please note that the information below is designed to provide an overview of the subject, and does not constitute, nor is it a substitute for, professional legal advice.

Number 1 – Reported and insured annual salary

The annual salary reported corresponds to your gross annual salary, i.e. your annual salary excluding deductions. This is limited in amount depending on the pension plan of your pension fund. A part of your salary is already covered by benefits from the 1st pillar (OASI: old-age and surviving dependants insurance), and this amount is also deducted. The result is the insured annual salary, which is essential to calculating benefits and contributions.

Number 2 – Savings capital

Your savings capital consists of all the benefits, contributions and interest you have accumulated, and tells you how much you have saved up for retirement.

Number 3 – Projected retirement capital

This information is based on your current retirement assets, which are projected for the remaining years. Incidentally: your retirement assets are taken into account without interest to determine statutory death and disability benefits, and with interest for regular retirement provisions.

Caution is advised in the case of homemakers or people who were not working for a long period of time: if you expect a gap in payments, you are strongly advised to make additional payments to avoid a pension shortfall later on.

Number 4 – Old-age benefits in the event of early retirement

If you are considering early retirement, it is well worth taking a look at these figures. Here you can see – categorized by preferred pension age – what reduced old-age benefits you can expect to see.

Number 5 – Benefits payable on death

If you pass away before you retire, your spouse or your eligible children are entitled to an annual pension that amounts to the sum stated in the pension fund certificate. This provision also applies to individuals in a registered partnership. In the case of retirees who were already drawing their pension, the surviving spouse receives 60% of the current pension, whereas orphans receive 20% of it.

Number 6 – Disability benefits

A person is entitled to a disability pension if the disability can be attributed to a medical condition. To receive a full annual disability pension, you must be at least 70% disabled, and the official waiting period must have expired. In the event of partial disability, the benefits you receive will be adjusted based on the severity of the disability.

Number 7 – Financing

This lists a breakdown of your pension fund contributions over the past twelve months. The total, i.e. your annual insurance amount, is funded by employee and employer in equal measure. This amount goes into three different pots in the 2nd pillar:

• Savings amount: this allows you to accumulate a pension, and is fixed as a percentage by law. It is also graded according to age categories. As a general rule: the older you are, the higher your mandatory savings component.
• Risk cost contributions: this is the share that goes towards insuring possible disability benefits and benefits on death.
• Occupational Pensions Act (OPA) additional costs: These are the administrative costs of your pension fund. In other words, it is the actual price you pay for the pension fund.

Number 8 – Termination benefits

If you change employer, the amount stated here is transferred to the pension fund of the new firm. If you give up gainful employment either permanently or temporarily, this amount must be transferred to a vested benefits account. As soon as you find employment again, this vested benefits credit must be transferred to the pension fund of your new employer.

Number 9 – Purchase

This is where you should look if you would like to top up your retirement capital. You can improve your savings capital by paying into the 2nd pillar if you so choose. The amount indicated corresponds to your gap in contributions, and therefore your maximum possible purchase amount. If you have paid in the maximum contribution or made an advance withdrawal for home ownership, the possible contribution is zero. Our tip: optional payments that go towards your pension are tax deductible, allowing you to save a fair amount of money!

Number 10 – Advance withdrawal for home ownership

There are a few ways you can take money out of a pension fund early. One of these is investing in home ownership. In our example, this isn’t the case, but the amount you take out is stated on the retirement certificate. There is a minimum amount you can take out, though there are restrictions that come into play from the age of 50 onwards. At this point it is important to remember that if you do decide to take out your pension earlier, you will not have retirement assets later on, meaning the benefits you receive will be lower. But benefits taken out early can also be built up again!

Incidentally

It is important to understand how your retirement plan works, how much your contributions will be later on, and how you can obtain higher benefits yourself. You will find numerous explanations in the relevant regulations of the pension fund, and if you do have any questions or concerns, don’t hesitate to contact your pension fund.

Four practical tips for you

Keep track of things

It is well worth taking a general look at your retirement planning. Pension fund benefits (2nd pillar) supplement OASI benefits (1st pillar) in the event of old-age, death or disability. Use your retirement certificate to look for potential pension gaps, and think about how you would like to fill them.

Check purchases

You can top up your pension by purchasing additional pension benefits, which will in turn improve your benefits from the 2nd pillar.

Make the most of the third pillar

To ensure you can continue enjoying the standard of living you’re accustomed to, a private pension via the third pillar is potentially a very good idea, and it can also help fill pension gaps in old age, disability or death cover. To protect against the risks of death or disability, life insurance is also well worth considering.

The fixed pension plan in pillar 3a provides very attractive prospects today

For instance, retirement assets can be invested in “retirement funds”, which consist of shares, bonds and alternative financial investments. By investing in retirement funds, savers can enjoy higher potential returns on average on their retirement capital than with a standard 3a retirement savings account. But the retirement assets are exposed to certain fluctuations on the financial markets.