Ever since we were kids, we’ve been going to the dentist regularly to prevent any holes from developing in our teeth. If there’s one thing we all agree on, it’s that toothache is one of the worst forms of pain out there. So why don’t we do the same thing when it comes to pensions? If you start saving for a pension right now, you won’t have to worry about having a nasty hole in your budget – also known as the «pension gap» – after you retire.

All good things come in threes – or your 3a

You can try and spin it as positively as you like, but the first two pillars of the Swiss pension system simply don’t give you enough money to ensure a comfortable retirement. The old-age and survivors’ insurance (OASI) pension (pillar 1) for individuals is capped at 29’400 CHF per year (from 2023), corresponding to a monthly pension of 2’450 CHF. If you’ve dutifully paid your OASI contributions every year for the last 44 years (43 years for women) and have an average income of 88’200 CHF, you’ll be eligible to claim a pension of this amount.
The Swiss Federal Constitution states (in Article 112(2)(b)) that this pension «must be sufficient to cover basic living expenses adequately». Of course, anyone who lives and works in Switzerland knows that this isn’t possible – and hasn’t been for a long time.
As a result, the second pillar was created in the 1970s. When combined with pillar one, a pillar two pension from a pension fund is intended to ensure each person’s existing standard of living. The idea isn’t bad, but its practical implementation in the modern age falls short of its goals. Nowadays, even every child knows that the combined benefits under the first two pillars haven’t cut the mustard for ages. The graph below clearly illustrates the problem:
Assuming that you earn 80’000 CHF per year, pillar one and pillar two will only cover around 65% of your monthly income after retirement. If you earn 100’000 CHF or more, the figure falls below 50%.

The budgetary monster

«A penny saved is (more than) a penny earned» Since we took our first baby steps, grandma has been feeding us her savings philosophy along with our breakfast cereal. And she’s actually right, as the pension gap in old age is a real monster – but this one actually exists and is worth being afraid of. You can, should and must fight it, if necessary with an individual pension plan, e.g. under pillar three.
In addition, pillar 3a is also a practical and flexible tool. You can put your savings into a bank account yourself, although that doesn’t make a lot of sense in today’s low interest rate environment. You can literally see your money melting away over the year like ice cream on a sunny day.
It’s totally different if you invest in equities: if you have a long-term investment horizon, you should consider investing your pillar 3a cash in securities, and benefit from stock market returns as well as the effect of compound interest.
You can use our Yuh pillar 3a ready reckoner to test the five individual investment strategies (from mild to fiery) and simulate various scenarios for your retirement.