AHV contribution gaps – everything you need to know
Anyone with gaps in their contributions to the Federal Old Age and Survivors' Insurance (AHV) will end up receiving a lower pension. So, how do these much-feared contribution gaps actually come about? How do you spot them and what can you do about them?
AHV contribution gaps result in pension reductions
If a single person one day hopes to receive the maximum monthly pension of CHF 2,450 (or CHF 3,675 for married couples), two conditions must be met:
- AHV contributions have been paid in with no gaps from January 1 of the year after the person turns 20 until they reach the reference age, i.e. for a total of 44 years.
- During this period, the average income from gainful employment was at least CHF 88,200 per year.
For each year in which no contributions are made to the AHV, the pension for women and men is reduced by 1/44.
Source: Credit Suisse
The following factors could be the cause of these treacherous gaps:
Periods spent abroad: travel
Anyone whose place of residence is Switzerland is subject to the AHV. Travelers must actively ensure they pay their minimum AHV contributions (currently CHF 514). Even if you deregister in Switzerland and spend a few years traveling abroad without a permanent place of residence, your domicile under civil law is still Switzerland.
Periods spent abroad: emigration
Any Swiss or EU/EFTA citizens who move abroad outside the EU/ETFA can pay voluntary AHV contributions to the Swiss Compensation Office in Geneva. Nevertheless, you still need to have been insured with AHV for at least five years without any gaps before you left Switzerland and you must submit the application by the annual deadline. Employees in an EU or EFTA member state are subject to the social security system in the country of residence. These years will count as gaps in your contributions when you return to Switzerland. Though you will be unable to close these gaps, you will be entitled to the contributions you made to the foreign social insurance system for the years you spent abroad. This does not apply to secondments, i.e. when an employee from a Swiss company is temporarily (though for no longer than two years) sent to work abroad. These employees remain insured under AHV.
Education
Students are required to pay contributions even if they are not employed. Students between the ages of 20 and 26 pay an annual minimum flat rate but have to register with AHV themselves. This rate may increase for older students as their assets and any pension income are also included in the calculation.
Source: Credit Suisse
Lots of short-term jobs with different employers
Salaries below CHF 2,300 per employer and calendar year are free from contributions. If you have lots of short-term jobs, you are in danger of falling short of the annual minimum amount.
Divorce or retirement of one of the spouses
During a marriage (or registered same-sex partnership), the spouse in gainful employment automatically pays the AHV contributions for the family manager not in gainful employment, provided that the spouse in employment pays double the minimum amount to AHV. Contribution gaps can arise if the marriage ends in divorce or if the gainfully employed spouse retires. This is because the partner not in gainful employment is then required to register separately with the AHV compensation office. From this point on, this partner is responsible for paying their own minimum contributions.
Employer's failure to forward AHV contributions
If an employer fails to transfer the contributions to the compensation office, the employee affected must prove that they worked for the employer during the period in question and that the AHV contributions were deducted from their pay.
In addition, Credit Suisse clients can use the interactive "Financial plan" function directly in Mobile Banking to analyze their individual pension situation at any time. This allows you to get an overview of what your financial situation will look like when you retire. Your digital advisor will help you to optimize your financial planning and will give you practical tips for closing any pension gaps in your pension provision in good time.
Do any of these situations sound familiar?
Then you should order an individual account statement from your compensation office to check whether there are any gaps in your contributions and when these occurred. It is important to make sure you order statements for all AHV accounts held in your name.
In addition, Credit Suisse clients can use the interactive CSX Financial Plan function directly in mobile banking to analyze their individual pension situation at any time. This allows you to get an overview of what your financial situation will look like when you retire. Your digital advisor will help you to optimize your financial planning and will give you practical tips for closing any pension gaps in your pension provision in good time.
Your options if you have AHV contribution gaps
There are ways to close contribution gaps:
- Missing AHV contributions can be compensated within five years.
- Anyone who completed an apprenticeship between the ages of 17 and 20 can have these counted as "youth years."
- With the entry into force of the AHV 21 reform from January 1, 2024, it is possible to work beyond the reference age in order to accrue additional contributions.
- Parents benefit from parenting credits for the years in which their children were under the age of 16 years.
- Exemptions are granted for contribution gaps created before 1979.
If you are unable to close contribution gaps with any of these methods:
- Get an overview together with a specialist: Calculate your income, taking into account the reduced AHV pension, your pension fund, and your assets, and compare these to your budget.
- Offset any losses caused by gaps in your contributions yourself with voluntary private pension contributions (third pillar).
- Consider deferring all or part of your pension.
AHV 21 reform
The AHV 21 reform enters into force on January 1, 2024. This is intended to secure financing for the first pillar until 2030. The new law means several changes with regard to pension provision: For example, the reference age for women is being raised incrementally until 2025 to 65 years – and thus harmonized with the reference age for men. Women born between 1961 and 1969 will receive a pension supplement as a compensatory measure if they do not draw their pension early. However, by doing so they are forgoing lower reduction rates.
It should be noted, however, that the reduction rates are likely to be reduced from 2027 onward. For this reason, it is important to clarify shortly before you retire whether it is worth waiting before drawing your pension early in order to benefit from the lower rates applicable at that time. Which option is more worthwhile must be considered on a case-by-case basis.
Under such transitional provisions, persons that have not yet reached the age of 70 at the beginning of 2024 and have paid contributions past the reference age may request a recalculation of their pension retroactively. Those with pension gaps in particular should take advantage of this option to check with the AHV compensation office whether they can make up for missing contribution years in this way.
