Pension advice: 5 pension mistakes to avoid
State pension benefits are under scrutiny and workplace pensions are already decreasing. This makes private pensions all the more important. Comparis tells you what pension mistakes you should avoid.
18.01.2023
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1. Mistake no. 1: overestimating your pension benefits
As things stand, state and occupational pensions will only cover around 60% of your previous employment income. In fact, approximately 80% of your previous income is required to maintain your standard of living after retirement.
This 20% pension shortfall must be covered by private savings. Don’t underestimate this – make arrangements in good time.
Additional pension shortfalls tend to be a greater cause for concern for women than men. You can read more about this in our article on the pension gap for women.
2. Mistake no. 2: starting to save too late
Even if retirement is still a long way off, it’s worth starting to save as soon as you can because of the interest rate effect. Even what may seem like small amounts can add up over time. The higher the interest rate and the longer you save, the greater the interest rate effect.
Example: if you start saving 100 francs per month at the age of 25, you will have accumulated 48,000 francs after 40 years. If the interest rate remains steady at around 0.2%, you will have accrued an additional amount in the region of 1,900 francs.
3. Mistake no. 3: not understanding your pension needs
The subject of pensions is complicated and the products offered by banks and insurance companies vary widely. Don’t wait too long to address the subject of retirement and look into the products available from banks and insurance companies.
Advice from a professional independent adviser may also help. They can propose a suitable solution based on a pension review. This thorough analysis covers your financial, professional and personal situation as well as your future financial requirements.
4. Mistake no. 4: signing an agreement in haste
Request quotes from several providers and compare them, as they can vary considerably. Read the terms of the agreement carefully and ask about anything that’s unclear before you sign.
5. Mistake no. 5: failing to exploit tax advantages
Have you decided on pension plan? Then make the most of the tax benefits. Payments into pillar 3a can be deducted from your taxable income. Pillar 3a income is also tax-free.
Important: if you are employed, you can pay a maximum of 7,056 francs per year into pillar 3a (as at 2023). Self-employed people with no occupational pension can pay in a maximum of 20% of their net income, up to a maximum of 35,280 francs.
This article was first published on 29.03.2019
