Knowledge is wealth: Only those with good financial knowledge take the optimum precautions

Switzerland's 3-pillar system aims to provide people with comprehensive protection: for financial independence after retirement, but also in the event of long-term illness or death. The 1^st pillar (state retirement provision) and 2^nd pillar (occupational retirement provision) together should provide a retirement income of around 60% of previous earnings.

The Sotomo research institute has already conducted a representative survey entitled "Fairplay in occupational retirement provision" four times on behalf of Zurich Insurance Company Ltd. In the Fairplay Study 2023, respondents stated that they would need an average of 76% of their previous income to live well in old age. Anyone who only pays into the 1^st and 2^nd pillars will therefore generally face a pension gap. Depending on a person’s life situation, this gap can be even larger, for example, if someone works part-time or is not employed for a period of time.

If you want to be well protected and enjoy financial freedom after retirement, you should definitely make additional private provision – for example, in the 3^rd pillar. Pillar 3a contributions can be deducted directly from taxable income. In the working population, 62% of men already use this option, but only 50% of women use it, according to the Fairplay Study 2024 (German version). Other pension options, such as the unrestricted pension plan in pillar 3b, are also popular. Nevertheless, 16% of men and as many as 29% of employed women have not yet made any additional provisions for retirement at all.

In the long term, it is highly likely that the best returns will not be achieved in a savings account, but rather by investing in securities such as shares or funds. This is compellingly demonstrated by the following example:

Let's imagine that three friends had invested CHF 100,000 at the beginning of January 2004: The first deposits their money in a savings account, the second invests it in bonds denominated in Swiss francs and the third invests in an equity fund that tracks the Swiss Performance Index. The savings account develops slowly but steadily, the bonds have certain fluctuations. The equity fund is subject to greater fluctuations and can even lose value in the meantime, especially during the financial crisis in 2008 and the coronavirus crisis in 2020. Nevertheless, the investment in the equity fund has delivered by far the best return in the long term, as the three friends note: after twenty years, at the end of December 2023, there is CHF 122,000 in the savings account, the investment in bonds is now worth CHF 140,000 and the equity fund is worth CHF 366,000.

But in Switzerland, only a minority invest at least part of their private savings in investments such as shares or funds: According to the Fairplay Study, the figure is only 44%. Men invest more frequently in return-oriented investments than women, older people more frequently than younger people. The decisive factor, however, is financial knowledge: In the group of those who are well or very well-informed, 70% state that they invest with a focus on returns. Among people who rate their own knowledge as "poor" or "very poor", the figure is only 14% (see chart). This means: Knowledge is wealth. A lack of financial literacy leads to people making decisions without fully understanding the consequences – they may pay for this with a massively lower retirement capital.

The importance of knowledge is also evident in the gender difference: Men and women cite reasons such as risk or lack of savings as the reason for their reluctance to invest. However, women are significantly more likely to say that they lack the knowledge to invest more in return-focused investments.

It is therefore very important to build up financial knowledge yourself – and to seek competent advice: Which retirement provision is right for me? How much risk can and do I want to take when choosing my investment strategy? What is my time horizon? Where are my pension gaps, and how can I provide for myself and my family as a whole? And what will it cost me? These questions can be clarified during a pension advice consultation. The result is a customized solution that is tailored to individual wishes and personal circumstances.