Retirement Planning Analysis: A Complex Topic Too Often Overlooked

11 October 2021

By Julien Humair*

At a time when digitalisation and online services are becoming increasingly important and making life easier for countless consumers, and when access to information has never been simpler, the question arises: how far can such access really take us? A user searches for what interests them and relies on their own knowledge. Sometimes, friends and acquaintances are the ones who spark interest in a topic. Whether looking for information or requesting offers, clients are increasingly willing to engage with subjects they often know little about. Conversations with our clients are more in-depth and topics are discussed in greater detail; we are noticing a genuine interest in fully understanding a solution before concluding a contract.

Pension planning, a complex and not very sexy topic

Pension planning analysis is one of those complex topics too often left aside; most of the people questioned seem to think they have a clear picture. Pension benefits will be insufficient. They often lack the information needed to understand why. Between us, who, after work, pulls out their LPP certificate and searches online to carry out their own pension planning analysis? Yet access to this information is easy in Switzerland: benefits in the event of disability, death or retirement from the 1^st and 2^nd pillars are available. However, calculating one’s own benefits requires a high level of knowledge, as well as the right analytical tools.

The analysis must take into account each client’s objectives and family/personal situation. Ultimately, one can certainly say that close to 80% of the Swiss population will have to face insufficient benefits. Understanding why, and how to act to make up these shortfalls, is part of the new expectations of better-informed clients. Without going into too much detail, around 50 to 60% of retirement income is secured for a person who has always lived and contributed in Switzerland with an income not exceeding CHF 86,000 per year.

The situation is quite different if income is higher, in the event of a late arrival in Switzerland, missing contribution years, use of the 2^nd pillar to finance a primary residence, or if one starts out as a self-employed professional. The average AHV and LPP pensions of people who retired in 2018 were below CHF 3,500 per month; the income gap is enormous and the impact on quality of life is significant. More than CHF 2,300 is missing every month — CHF 28,000 every year!

What if pension planning analysis could save your finances at low cost?

Retirement, which should be one of the best periods of life — when we should finally be able to enjoy our free time — becomes for some an economic puzzle. How can one cope with costs that keep rising when income has been cut by more than a third? A study by the Federal Social Insurance Office (OFAS) shows that, over 20 years, the number of people drawing their retirement pensions abroad has more than doubled! Is Switzerland too expensive for our seniors to enjoy a peaceful retirement here? Must we leave our family and friends in order to afford a decent standard of living?

Yet building up capital that allows one to maintain a standard of living comparable to that enjoyed before retirement is within reach for most budgets. A meticulous analysis of the client’s finances and pension cover is therefore essential to secure their situation and protect their family. Banks and insurance companies offer a wide range of increasingly innovative products. The main difficulty lies in identifying those best suited to clients’ specific needs, at the best rates. Ultimately, the challenge is to be able to present and explain the solutions so that the client has a clear overview. There are several options available for clients to gather information, but it is advisable to seek the help of a professional financial adviser so that they can understand the stakes and the impact of their current choices on their future.

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