Pensions

5 pension mistakes to avoid

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Do you know how much money you’ll need to retire on? Source: iStock / eranicle

With retirement benefits from state and occupational pensions declining steadily, the importance of private pension plans is increasing. Start saving as soon as possible, but don’t rush into signing any agreements. 

The benefits from state and occupational pensions are no longer sufficient for maintaining your standard of living after retirement. That’s why it’s essential to avoid the following 5 pension mistakes

Mistake no. 1: Overestimating pension benefits

With pension benefits at their current level, most people can only expect to achieve around 60 per cent of their employment income when they retire. It’s important to recognize this pension shortfall as soon as possible. Don't underestimate it – make arrangements in good time.

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 0.5 per cent, you will have accrued an additional 5,000 francs. 

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.

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. 

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.

Important: If you are employed, you can pay in a maximum of 6,768 francs (6,826 in 2019) per year. Self-employed people with no occupational pension can pay in a maximum of 20% of their net income or 33,840 francs (34,128 francs in 2019). 

  

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