Pension gaps: how and why should you address them?

What is a pension gap?

A pension gap arises when the income you will receive in retirement is insufficient to maintain your accustomed standard of living. In Switzerland, the combined benefits from OASI (1^st pillar) and occupational pension provision (2^nd pillar) generally cover around 60% of final salary, which is often not enough to sustain the same quality of life after retirement.

Identifying such gaps as early as possible allows for targeted action and helps avoid difficult adjustments as retirement approaches.

Why do pension gaps occur? 

Pension gaps can result from situations commonly experienced during a professional career, including:

• interruptions or reductions in professional activity,

• part‑time employment,

• periods of training or career transitions,

• expatriation or a return to Switzerland,

• divorce, due to the division of pension assets,

• higher incomes exceeding the insured limits of the second pillar.

All these factors directly affect contributions paid and, ultimately, future retirement benefits.

Understanding pension gaps within the three‑pillar system

The Swiss pension system is based on three complementary pillars:

• First pillar (OASI): state pension provision designed to cover basic needs,

• Second pillar (LPP): occupational pension provision intended to maintain living standards,

• Third pillar: voluntary private pension provision, offering flexibility and personalisation.

When the first two pillars are insufficient to meet retirement income objectives, the risk of a pension gap becomes significant and calls for corrective measures.

How can pension gaps be addressed? 

Making up contributions to the first pillar 

In certain situations, it is possible to retroactively pay missing OASI contributions, within legally defined time limits. These measures help improve future pension benefits and avoid permanent reductions. 

Buying into the pension fund (second pillar)

Pension fund buy‑ins are one of the most effective tools for addressing pension gaps. They make it possible to:

• increase retirement benefits,

• strengthen coverage in the event of disability or death,

• benefit from tax relief, as buy‑in amounts are generally deductible from taxable income.
  

Building or strengthening private pension provision

The 3^rd pillar complements the first two pillars and allows pension planning to be aligned more closely with personal objectives. It offers greater flexibility in terms of investment strategy, taxation and estate planning.

Why is it essential to act early?

The earlier pension gaps are identified, the broader and more effective the available solutions will be.

Acting in good time makes it possible to:

• spread efforts over several years,

• fully benefit from tax advantages,

• reduce financial pressure as retirement approaches,

• secure long‑term personal and family projects.

The importance of a holistic approach

Addressing pension gaps is a structuring wealth‑planning decision that should be considered within the broader context of your overall financial situation. It requires taking into account your age, family situation, future plans, total wealth and risk tolerance.

Personalised advice helps define a coherent strategy aligned with your life path and long‑term objectives.