Part-time work: how to avoid gaps in your pension

More and more people in Switzerland are deciding to reduce their working hours – whether it’s for a better work-life balance, caring for family members, pursuing hobbies or continuing their professional training. However, the flexibility this gives comes with a price: part-time work is often linked with lower income, directly affecting pension fund contributions and later benefits. This can even be the case if working a total of 100 percent but for different employers.

In order to recognize and minimize pension gaps, it’s important to understand the specifics of part-time jobs and put measures into place early.

The specifics of the pension system when working part time

1st pillar (OASI)

OASI provides a basic pension that is obligatory for the entire population of Switzerland. The pension benefits are based on the number of years of contribution and the average income earned while working. As people with a part-time job tend to earn less, their pension fund contributions are also usually lower. This is how pension gaps arise, which can significantly reduce pension benefits later on.

2nd pillar (employee benefits, OPA)

When it comes to your pension fund, the risk of pension gaps is even greater. Part-time workers often have the disadvantage of the coordination deduction leaving a large part of their income uninsured. The coordination deduction – currently 26,460 francs per year – is deducted from the gross salary before the insured salary is calculated, which serves as the basis for the contribution calculation. As this deduction is fixed and generally applies per employer, only a small portion of the insured salary remains for lower incomes – even if the total income of all part-time jobs is high.

Example

For a part-time job with a yearly gross salary of 30,000 francs, only 4,275 francs remains as insured salary once the coordination deduction has been deducted. This leads to significantly lower pension fund contributions and greatly reduces future pension payments.

Identify and close pension gaps

Those working part-time jobs need to plan their retirement provision carefully. The amount of income determines the contributions into the 1st and 2nd pillars. It’s worthwhile taking a closer look and making sure you understand your own situation. This is especially the case for those earning an hourly wage, as irregular income can complicate retirement planning. A professional retirement planning analysis from a financial service provider can help identify risks. Digital tools also offer an easy way to spot pension gaps.

Measures for optimizing retirement planning

Special challenges of part-time work

Anyone working one or more part-time jobs must be aware of some disadvantages compared to full-time employees. In addition to the OASI and OPA issues mentioned above, part-time workers should be aware of the following areas in particular and of any measures that may be required:

Cohabiting partners

Unmarried couples who are cohabiting and working part time often face greater challenges regarding their retirement provision in comparison to married couples. Cohabiting part-time workers are usually more financially dependent on their partner, as their lower income reduces their personal retirement planning. Unlike married couples, cohabiting couples cannot claim survivor’s benefits from OASI, which has a further impact on their situation later in life. It could be the case, however, that the pension fund makes provision for this for the surviving partner. Contact your pension fund for information and register your partner as a beneficiary. It’s also worth drawing up a cohabitation agreement or taking out life insurance in order to secure the financial security of the cohabiting partner’s beneficiary. 

Illness

Illness can reduce your pension planning. Those working hourly or irregularly often receive little or no continued salary payment in case of illness. Depending on the job and life situation, it may be worth taking out daily allowance insurance to protect against large losses of income.

Accident

In Switzerland, all employees must be insured against occupational accidents by their employer. Anyone working more than eight hours per week in the same company is also insured against non-occupational accidents. As a result, part-time workers working fewer than eight hours per week and per employer are not automatically insured against non-occupational accidents and should take out private accident insurance.

Summary: plan your retirement provision actively

Part-time employees must accept some disadvantages regarding their retirement planning in comparison to full-time workers, but these can be partially offset. The largest gaps for those working part time occur due to low contributions into the 1st and 2nd pillars and, due to the lower insured salary, into the pension fund.

A particularly effective way of closing pension gaps is to make inpayments into the pillar 3a as well as voluntary contributions into the pension fund. As both of these options also help to optimize taxes, they are particularly attractive financially.

To further improve the personal retirement planning situation, it can be worth taking out additional insurance policies or making back payments for any missing OASI contribution years.

A professional retirement planning analysis or retirement fund calculator can help identify existing pension gaps. Check your retirement planning situation and put the possible measures into place. The earlier part-time workers start planning their retirement, the better prepared they are for financial challenges in old age or in case of illness or death.