There are more and more patchwork families in Switzerland. They have special and sometimes complex coverage needs. To prevent problems, a holistic analysis and individually tailored pension solutions are needed.

Around 15% of all families in Switzerland are patchwork families. Their number is increasing, and they will perhaps be the most common family form in the future. Patchwork families are families in which both joint children and children from previous partnerships live in the same household; the partners may or may not be married. The patchwork family can be very rewarding for all involved, but it also brings challenges. «Especially when it comes to the topics of finances, retirement planning and inheritance, good planning is required, otherwise there is a risk that financial gaps will arise in the event of disability or that surviving dependents will be disadvantaged in the event of death», the experts at Maklerzentrum Schweiz state in this regard.

The new inheritance law helps

Inheritance law in Switzerland was mainly geared to traditional families. Natural children often competed with their parents' new partner for the inheritance. Without a will, stepchildren receive nothing; in addition, the compulsory portions of the natural children and the spouse must be observed. However, the spouse's and children's mandatory shares have been reduced. «The revised inheritance law, which came into force on January 1, 2023, offers testators significantly more freedom than before and thus accommodates patchwork families», say the experts.

Precaution is important

But it is not only the estate that needs to be settled. Provisions should be made for the event of disability or incapacity to work, which can be done within the framework of free or restricted pension provision. Within this framework, the build-up of the financial resources required in retirement should also be addressed in general terms and, if necessary, the event of death should be covered.

Which precautionary option is the right one?

By far the most popular pension measure for many Swiss people is the tied pension plan 3a. It comprises voluntary, tax-privileged savings with the 3rd pillar and is often seen as a supplement to the pension from the AHV and pension fund. It is intended to secure a standard of living in old age. The accumulation of retirement capital via pillar 3a can be done either via a bank solution or an insurance product. A pension solution with the unbound pillar 3b is also possible, but without tax benefits. And the experts know: «This solution can be chosen instead of a tied 3a pension solution, as it offers additional freedom. But in most cases, the tax advantages of a tied 3a retirement solution outweigh the disadvantages.» The experts also point out that with regard to lump-sum withdrawals and tax deductibility, the same legal regulations apply to insurance and bank solutions. Regarding to other aspects, however, there are major differences.

What is different about insurance products?

«Insurance products include insurance coverage, which is why the insurance premium is made up of a risk premium and a savings premium», the experts state. And they continue: «With bank products, the entire capital invested benefits the retirement provision. Bank solutions therefore lead to a higher retirement capital than insurance solutions for the same level of deposits and the same investment strategy, and they offer more flexibility - for example, in terms of the amount paid in, deposit periodicity or early withdrawal of capital.»

The risk protection makes the difference

Insurance solutions involve a certain pressure to save, as premiums are due regularly. The experts see a certain advantage in this, as it exerts a gentle pressure on customers to achieve the defined savings target. At the same time, they put it into perspective: «However, it is possible with most insurance solutions to suspend the savings process for up to three years in the event of a financial bottleneck and only benefit from risk coverage.»

Insurance policies provide risk protection for loss of earnings (e.g. short pension), disability (e.g. disability pension) and death (e.g. lump-sum death benefit). However, losses are incurred in the event of early withdrawal (surrender when the policy is terminated). «Insurance solutions, however, offer comprehensive protection for building up retirement assets. This is because in the event of loss of earnings or disability, the insurance company takes over the payment of the amounts as part of the premium waiver, and the savings target is achieved in any case», the experts conclude.