For most students, money is usually in short supply. Accommodation, food, public transport subscriptions and smartphones all come at a cost. And when there’s money left over, students save for their next holiday or to buy their first car. Barely a thought is given to the distant future or life in old age. Retirement is too far off and finances are far too tight. However, this is exactly the right time for students to start laying the foundations for their own retirement planning, because those who act now will have more set aside to live on later.

Watch out for gaps in retirement provision

Admittedly, it’s not easy to understand the complex Swiss retirement planning system with its three pillars. We explain the most important factors for students here:

AHV (old-age and surviving dependants insurance)

• From 1 January after their 17th birthday, working people pay AHV contributions
• For those not in employment, the obligation to pay AHV contributions applies from 1 January after their 20th birthday.

Employee benefits

• Working people who are liable for AHV contributions have mandatory insurance in the pension fund when they earn a minimum of CHF 22,050 (as of 2023)
• Until the age of 25, insurance only covers the risks of death and disability

If payments are not made towards AHV despite it being mandatory, this can cause problems in old age. Each year without AHV contributions will reduce your pension. Missing contributions can only be paid in arrears if they were less than five years ago. However, gaps in the pension fund can be closed later by making a voluntary purchase. This means it’s not serious if many students are not insured in a pension fund because of their low income from a part-time job.

Disability insurance

If students become unable to work in the long term because of an accident or illness, they can also claim a disability pension. Accident insurance provides additional benefits in the case of an accident. But take care: if you are employed by the same employer for less than eight hours per week, you are only insured against occupational accidents and illnesses, not against non-occupational accidents.

Nevertheless, the disability pension is usually too little to cover all expenses because of the low income. Private retirement planning, e.g. with insurance against incapacity to work or private accident insurance, is therefore essential in the event of disability due to illness or accident.

Start saving young in the 3rd pillar

Taken together after retirement, pensions from OASI and the pension fund amount to an average of around 60% of the most recent income before retirement. This is where the third pillar comes into play, and where you can put money aside voluntarily for later use. The following rules apply here:

• Everyone with an income liable for OASI contributions can pay in to pillar 3a from 18 years of age. Many students with a part-time job reach this threshold.
• The annual amount that can be paid in is capped at a maximum of CHF 7,056 for working people with a pension fund (as of 2023) and 20% of the net income or a maximum of CHF 35,280 for working people without a pension fund (as of 2023).
• The following rules apply here: everyone with an income liable for AHV contributions can pay into pillar 3a. Both solutions offer the opportunity to invest in a fund.

It’s well worth starting to save in the third pillar when you are still young. Interest and fund income earned remain in pillar 3a. As such, the longer the money remains in the third pillar, i.e. the earlier you begin paying in, the more you’ll benefit from this interest effect if you make regular inpayments or from the cost averaging effect if you make fund investments. Students who don’t fulfil the preconditions for paying into pillar 3a can save in pillar 3b instead. Find out the differences between pillar 3a and pillar 3b in this article.

Reduce your tax bill with pillar 3a

Pillar 3a can be used both for building up capital over the long term and also for saving on taxes. This is because payments into pillar 3a can be deducted from taxable income. Interest and investment earnings are exempt from income and withholding tax. No wealth tax applies, and capital is taxed separately from other income at a reduced rate when it is paid out.

Useful information

Basically, money in pillar 3a is intended for retirement and can be withdrawn a maximum of five years before the usual AHV retirement age. But there are exceptions. For example, people who move abroad permanently, become self-employed or buy their own home can have the money they have saved paid out. For this reason, pillar 3a is not only about saving for old age but also for fulfilling wishes before retirement.

So instead of immediately spending every hard-earned franc, it’s good for students to keep an eye on retirement planning. At the very least, you should make the minimum AHV payments. It’s also well worth making use of the opportunities offered by the third pillar. Even CHF 50 per month is a good place to start.

Find out everything you need to know in our comprehensive guide to retirement planning.