How to protect your partner with Swiss pension solutions – life insurance, 2nd pillar, 3rd pillar
Society has evolved. In Switzerland, more and more couples prefer to live together rather than get married. But this lifestyle has its advantages and disadvantages, and it is therefore in the interest of couples who make this choice think about the financial consequences of such a decision.
Married couples are protected on all levels, ranging from old age provision has liquidation of the estate. On the contrary, cohabiting couples voluntarily waive any legal obligation to maintain a certain freedom and enjoy the nature of their way of life. In a marriage or registered partnership, spouses are required to support each other and the family, and each partner receives additional protection.
But, how can couples living together preserve themselves financially and have good pension coverage? How to protect your partner in the event of death or separation? What are tax implications for unmarried couples?
Many young couples living together consult us with these questions. In this article, our pension advisors at Impact Financial Engineering tell you how to build your pension adequately and avoid gaps in the event of cohabitation, as well as the points to consider regarding public welfare, professional and private. This is particularly recommended for cohabiting partners who have at least one child or who are thinking about invest in real estate.
The Swiss pension system offers you 3 retirement savings solutions : old age and survivor insurance (AVS) or 1er pillar which constitutes compulsory public insurance, 2e pillar or professional pension provision (LPP) and the 3rde pillar of private pension provision (3a linked and 3b free). All these solutions allow you to save capital for maintain an adequate standard of living in retirement.
Cohabiting people are not automatically insured under pension law and are not taken into account in the succession planning, given that the Swiss 3-pillar system is still based on the traditional situation of spouses in terms of welfare. Cohabitees must therefore be aware of the special provisions concerning pension provision.
Old-age and survivor insurance (AVS) or 1st pillar
While married couples benefit from each other's AVS contributions, for cohabiting couples, the system is individual. If one of the partners decides not to carry out gainful activity, it is necessary to report this to the AVS, in order to pay AVS contributions for non-active people.
For married couples reaching retirement age, pensions are merged and capped. For cohabiting partners, on the other hand, both receive an individual pension in full. Unlike married couples, cohabitants are exempt from the cap (reduction of the AVS pension) at 150% of the maximum old-age pension. A married couple therefore collectively receives an old-age pension of up to 44,100 francs, while cohabiting couples can receive up to 58,800 francs.
In the event of the death of one of the partners, the surviving spouse or registered partner is entitled to a widower's pension provided that he or she meets the conditions provided for by the AVS law. However, cohabiting partners do not benefit from a survivor's pension in the event of the death of one of them. Conversely, if cohabiting people separate, they are penalized and no compensation for old age is provided (no splitting of contributions). As for the orphan's pension, this provision has no effect for children born from another union.
2e pillar or professional pension provision (LPP) or the pension fund
As with the AVS, in principle for cohabiting partners, the LPP capital that you have accumulated during your life together must not be halved in the event of separation. As cohabiting partners, your pension contributions are and remain yours. In some cases, the payment of benefits depends on the settlement of the pension fund concerned. Since annuities paid to cohabiting partners are not governed by a legal standard, it is worth understanding the terms of the pension fund to which you are affiliated.
If no benefit is provided for by the Regulation in favor of the partner, this pension gap can be corrected by private life insurance and the partner is covered. If, however, benefits are provided for the partner, it is necessary to notify the pension fund in writing. Otherwise, he will receive nothing.
For married couples, in the event of death, the surviving spouse legally receives a widower's pension (provided they meet the grant conditions). For cohabiting partners, benefits can only be paid in the event of death to the surviving partner, although there is no legal right in this regard. Provident institutions, which grant annuities to partners, often make them subject to a specific period of cohabitation or the care of common children.
3e pillar or private pension
If you have decided to live together, we strongly recommend that you invest in pillars 3a and 3b, since the 1er and 2e pillars are only partially adapted to the protection of cohabiting partners in the event of death.
In a marriage, in the event of death, pillar 3a pension assets are transferred to the surviving spouse according to the order of the beneficiaries (legal order according to which the biological children are the first, then only the partner and other members of the family). If necessary, additional beneficiaries can be added but in all cases, the order of succession of your 3a capital must be defined during your lifetime with your provident institution.
To take the partner into account, it is necessary to contact the pension foundation in writing. The order of beneficiaries in the life insurance of the provident institution (pillar 3b) can be designed individually according to the law of the insurance contract. For the rest of the fortune, a will in favor of the partner can be established while respecting hereditary reserves.
Free pension provision (pillar 3b) is particularly suitable for cohabiting couples. As beneficiaries can be freely chosen up to the legal reserve shares, all choices are possible for mutual financial protection objectives, including savings accounts, bank accounts, life insurance, bonds, money market investments, stocks, securities funds and real estate. Of course, it will also be necessary to specify its nature and scope in the beneficiary clause and later in a will.
Note that the pension fund (2 pillar) and private insurance (3rd pillar) constitute ideal solutions to protect yourself when living together. Swiss law allows the assets of 2e pillar and pillar 3a belong to the partner if he contributes decisively to the needs of the household or if he has common dependent children. This benefit is offered on the condition that the relationship has existed for at least five years. We advise partners to explicitly designate their partner in writing as beneficiary, for example in the case of life insurance from 3e pillar.
Tax advantage
The tax benefits for couples living together without being married can be significant. However, the protective measures of the Marriage Act do not apply to cohabiting couples. In the event of cohabitation, each partner must complete an individual tax return and is fully responsible for any outstanding tax debts. Without children, you benefit from the rate for single person; with child, the rate with a dependent. The child maintenance agreement serves as the basis for the child deduction.
Most of the assets vested in the partner through pension provision are not subject to inheritance tax (often confiscatory), but to a single and separate tax of around 10% on the Swiss average.
It is essential to find one pension advisor reliable which will help you find the optimal individual solution for your retirement and for the adequate protection of your partner. If you have any questions or would like a pension advice interview, contact our firm in Geneva and get an interview with our advisors.
