Financial freedom in retirement Tips for avoiding poverty in old age

Wages in Switzerland are high compared to other countries – but so is the cost of living. Retirement can therefore become a financial challenge for many. Especially for those who have not saved at all or nearly enough for their retirement.

In this blog, we offer you tips on how to prepare for retirement and avoid financial bottlenecks or even poverty in old age.

Poverty in old age in Switzerland

Poverty in old age is more than a financial challenge – it means that pensioners do not have enough income to cover the basic cost of living. In Switzerland, almost 300,000 senior citizens live on the poverty line. Around 13.6 percent of them could not easily pay for unforeseen costs of CHF 2,000 (as of 2022).

But how do you define poverty in old age? In Switzerland, you are considered poor if your income is less than the subsistence minimum of CHF 12,000. If you only have a few hundred francs a month, you will quickly find it difficult to pay for rent, food, medical care, and other necessary expenses. Certain groups are particularly vulnerable: Women are affected twice as often as men. Single parents are also more likely to suffer from poverty in old age. Both are due to lower pension entitlements.

Causes and consequences of poverty in old age

There are often several interrelated causes of poverty in old age. Possible factors include:

• Low income: People who have earned little during their working life pay less into their retirement provision. As a result, they receive a lower pension later on.
• Insufficient retirement provision: Retirement provision in Switzerland consists of three pillars: The state pension (OASI), occupational benefits insurance (pension fund), and private retirement provision (Pillar 3 account. If the person pays too little into one or more of these pillars, the pension is correspondingly lower.
• Income gaps: Periods without work – due to unemployment, sickness, or caring for relatives – also lead to lower contributions to pension funds.
• High costs of living: Living expenses in Switzerland are high. If the pension is not enough to cover these costs, pensioners run can into financial difficulties.

Financial bottlenecks in old age can affect your quality of life as they make it more difficult to participate in society. This can lead to social isolation and also hinder access to essential medical treatment. It is therefore important to make early provision in order to secure your standard of living and well-being in old age.

How the state prevents poverty in old age

In order to prevent poverty in old age, the state is implementing several measures. The three pillars mentioned above play a central role here. OASI is mandatory for all gainfully employed persons and is financed by contributions from employees, employers, and the state. It guarantees a basic pension that is intended to guarantee a minimum income in retirement. In addition to OASI, there are pension funds into which employers and employees are also required to pay contributions. The aim is to increase the pension in retirement and maintain the accustomed standard of living. Nowadays, however, ,money from the first two pillars is usually no longer enough. This is why the third pillar, private retirement provision, has gained in importance. The state promotes these by means of tax incentives in order to strengthen individual retirement provision. In addition to OASI and pension funds, citizens can save for retirement and close financial gaps.

The government also offers supplementary benefits to OASI and invalidity insurance. These benefits support people whose pensions and incomes are insufficient. To ensure that women and single parents are less likely to suffer from poverty in old age, the state is also promoting flexible working models and the expansion of childcare services. This helps to close any gaps in income career history and guarantee higher contributions to your retirement provision. Ultimately, however, retirement provision is also a question of one’s own motivation and options. That’s why government measures are in place to provide education and information on the importance of retirement provision: Campaigns and counseling services are intended to help the population prevent poverty in old age sufficiently and at an early stage.

Preventing poverty in old age: Make provision for retirement with these tips

In order to best prepare for retirement and be financially secure, you should act early. Here are some tips: 

1. Start saving for retirement early
   The sooner you start saving, the more you can save. Use this time to benefit from compound interest over the long term.
2. Use all three pillars of your retirement provision
   Make sure you pay into both OASI and occupational benefits insurance. Supplement this with a private pension in Pillar 3.
3. Benefit from tax advantages
   Use the tax advantages of Pillar 3 to invest additional savings for retirement.
4. Find out about state subsidies
   Check whether you are also entitled to state support or tax breaks outside of Pillar 3 – and make targeted use of them.
5. Regularly review your pension situation
   Get an idea of your current and future pension entitlements. If necessary, adjust your savings measures.
6. Close gaps in your income history
   Be aware that parental leave, unemployment, or part-time work affect your pension entitlements. Take advantage of opportunities to close such gaps.
7. Protect yourself with continuing education and training
   Invest in your professional development to increase your employability and your income. This has a positive impact on your retirement provision.
8. Talk to a financial professional
   Receive professional advice to analyze your financial situation and draw up an optimal provision plan. Your advisor can also recommend investments that are particularly well suited for retirement provision.
9. Take advantage of employer offers for retirement provision
   Find out about your company’s occupational pension plans and other pension offers.

Help for seniors in financial difficulties

If your retirement income is insufficient despite regular contributions to OASI and your pension fund, there are various support options. The state ensures that seniors are not left alone: In addition to supplementary benefits, seniors can also claim social assistance. This ensures that they receive the necessary means for their livelihood, including accommodation, food, and medical care.

In addition, there are various foundations and non-profit organizations that support seniors. There they receive financial assistance , counseling, and help finding a place to live. Examples of such organizations are Caritas and Pro Senectute (in German), which are specifically focused on the needs of older people. In addition, affected pensioners can benefit from discounted or free services, such as meal services, travel services, or cultural events. These services help to improve the quality of life of those affected.