Apr 21, 2020.

Switzerland has never seen such figures: the authorities had received applications for short-time work for more than 1.5 million people by the start of April. That is one in five workers. For well over 100,000 companies, short-time work compensation is vital during the corona crisis. But what does it mean for the retirement provision of short-time workers? Our experts explain.

Quicker and more comprehensive: new rules for short-time work

If a company does not have enough work for its employees over a limited period of time, it can apply for short-time work. In this way, it can maintain jobs and compensate for lost revenue. As of 20 March, applications for short-time work can be submitted and granted quickly and with no bureaucracy. In the same resolution, the federal government also expanded the group of persons for whom employers can apply for short-time work: apprentices, people on fixed-term and temporary contracts and people in pseudo-employer positions are now also included.

SECO: simplified short-time work and federal package of measures

«Pension gaps in later life result from two misjudgements: underestimating how much you will need and overestimating how much you will get.» (Quote by Dr Achim Reichert (*1941), physicist and former Hamburg politician)

Guido G. Studier, Senior Training Expert

How will short-time work affect my retirement provision?

In the short term, short-time work compensation helps companies to survive an acute crisis. But what are the long-term consequences of this measure for employees and their retirement provision?

State pensions (pillar 1) and occupational pensions (pillar 2)

This measure will not leave you with any pension gaps. Although you will only receive 80% of your original salary during short-time work, your insured salary will remain the same. The contributions that you and your employer pay into pillars 1 and 2 are based on this salary. According to the AHV (leaflet 2.11):

“In the event of entitlement to short-time work or bad-weather compensation, employers must pay social insurance contributions in line with normal working hours, i.e. the full salary amount. This includes the following contributions:

contributions to AHV, IV, the federal income replacement scheme (EO) and unemployment insurance (ALV)
contributions to the family compensation fund
contributions to occupational pensions
accident insurance premiums”

Sample calculation:

Regular employment (100%)

Gross salary	CHF 4’500.00
Pillar 1 deductions (6,375%) AHV, IV, EO and ALV*	-CHF 286.90
Deduction for non-occupational accident insurance (2%)	-CHF 90.00
Pillar 2 deduction (occupational pension)	-CHF 169.85
Net salary	CHF 3’953.25

*AHV = old-age and survivors’ insurance
IV = disability insurance
EO = federal income replacement scheme
ALV= unemployment insurance

Short-time work

Gross salary

CHF 4’500.00

Gross salary reduction:

136h x CHF 24.43

-CHF 3’322.00

Reduced gross salary

CHF 1’177.50

Pillar 1 deductions (6,375%)
AHV, IV, EO and ALV

-CHF 286.90

Deduction for non-occupational

accident insurance (2%)

-CHF 90.00

Pillar 2 deduction (occupational pension)

-CHF 169.85

Net salary paid

CHF 630.75

Compensation

+CHF 2’658.00

Reduced total salary

CHF 3’288.75

Good to know: Contributions to pillars 1 and 2 are only fully guaranteed for a maximum of 12 months (within a period of two years). For longer periods of short-time work, you should expect contribution gaps. Speak to your employer to find out more.

Private pensions (pillar 3)

This area is more complex because banks and insurance companies offer very different solutions. Terms of payment also vary substantially, from monthly fixed amounts to flexible annual premiums. Under certain circumstances, your agreement may lead to financial bottlenecks if you have a reduced salary.

More tips: closing pension gaps

Short-time work: how to avoid pillar 3 pension gaps

If you are on short-time work, you should take a close look at your pillar 3 pension and make any necessary adjustments.

Check your financial situation: How much money is available to you with only 80% of your salary and what payment obligations have you entered into under pillar 3?

Clarify terms of payment: What payments are you obliged to make and when, and what other options (monthly, annual or flexible payment) are there?

Make adjustments: If your reduced income makes it difficult for you to pay pillar 3 contributions, you should discuss the following options with your pension provider:

If you have a fixed annual premium, you can change the instalments to semi-annual, quarterly or even monthly. With unit-linked solutions, you also benefit from the average cost effect.
If you have taken out a flexible solution where you decide yourself how much you pay in and when (such as Generali’s digital pillar 3a), you should check how much you can actually pay in 2020.

Good to know: Suspending your payments for a year can have significant implications. In the sample calculation below, an individual makes no pillar 3 payments in 2020. He still has 25 contribution years until retirement.

	Contribution gap in 2020	Interest / Return	Contribution years	Pension gap
Current BVG interest rate: 1%	CHF 5’000.-	1%	25	CHF 6'412.16
Empirical Generali interest rate	CHF 5’000.-	4%	25	CHF 13’329.20

Conclusion: retirement provision secure despite short-time work

Even if you are currently on short-time work, you do not need to worry about your state and occupational retirement provision as a result of COVID-19. As a rule, this measure does not create pension gaps. If you have a private pension, you should check your terms of payment and make any necessary adjustments to avoid having to postpone your long-term goals.

If you have any questions, our experts are here to help.

Sources:

The authors :

Steve Ummel, Guido Studier

Short-time work: what will happen to my retirement provision?