Cohabitation is experiencing a boom in Switzerland – not least for tax reasons. However, if couples who are not married have children, there are gaps in their provision and other risks.
“Marriage without a marriage certificate” is trendy. One in five couples with children under five in Switzerland is now unmarried; in 2010 it was only one in ten. In 2022, 30 percent of children in Switzerland were born to an unmarried mother, data from the Federal Statistical Office show.
Often tax advantages in cohabitation
Many couples do not marry for tax reasons, says Reto Spring, President of the Swiss Association of Financial Planners. If both partners earn well, marriage is generally a tax disadvantage. “In 80 percent of cases, dual earners pay higher taxes as a married couple than as a cohabiting couple.”
Further incentives for couples not to marry may be that entitlement to a widow’s pension becomes invalid if they remarry. The AHV pensions of unmarried couples are also higher after retirement than those of married couples.
However, many cohabiting couples are not aware that they are taking risks when it comes to retirement planning. Unmarried mothers in particular often do not know what dangers they would face in the event of a separation or the death of their partner, according to a new study by the insurer Swiss Life. The following risks and disadvantages must be taken into account.
Poorer security in cohabitation than in marriage
First of all, surviving unmarried partners do not receive any widow’s pension or widow’s supplement from the AHV, as the study explains. Even in the occupational pension scheme, cohabitation partner pensions for surviving dependents are not actually provided for – but many pension funds offer this if you register for it in writing.
If a marriage ends in divorce, there is a splitting in the AHV and a pension equalization in the pension fund. However, this does not apply to unmarried couples. So if one partner has significantly reduced his or her workload because of the children, there is a risk of a major gap in provision.
Working part-time creates gaps in pension provision
In practice, he repeatedly sees that many women extend their maternity leave and significantly reduce their workload after the birth of a child, says Spring. However, those who work a small amount of work usually have gaps in their provision. According to the study mentioned, for example, in the population group of 25 to 44 year olds with children in the household, men worked an average workload of 90 percent in 2022, while this was only 48 percent for women. This was the result of an online survey of more than 4,000 people in Switzerland in March of this year.
The pension gap for part-time employees comes from their lower pay, but above all because they often miss out on career opportunities. “They get stuck in their careers, often have no ambition for higher positions for a while and are not supported by their employer,” says the financial planner. “As soon as there is a child, equal pay in the partnership is no longer guaranteed.”
Lower pensions for women
According to the study, women today have around 30 percent lower pensions than men. According to study director Andreas Christen, however, this number represents an “echo from the past” because it is based on previous employment histories. Between 1996 and 2022, the average gender gap in working hours fell from around 40 to 24 percentage points.
Although a further reduction in the difference is to be expected, it is unlikely to disappear in the foreseeable future. The study shows that childless young women who want to have children are more likely to assume that they will reduce their working hours than childless men who would like to have children.
According to the federal government’s new pension statistics published last week, there are clear gender differences in pensions from occupational pension schemes. This is illustrated by an evaluation of the pensions of people who received their money from the pension fund exclusively as a pension. For women, the median amount was 1,260 francs per month; for men it was 2,205 francs. The median value means that 50 percent of the pensions paid out were higher and 50 percent were lower.
However, lower earned income not only leads to lower pensions in the occupational pension scheme, but also to less capital accumulation in the third pillar.
Children are expensive – especially in Switzerland
In addition, when deciding to have children, couples – whether married or not – should be aware that this can result in a loss in both career and wealth, says Spring.
In a conservative calculation of the costs of two children for a median couple in Switzerland, the pension specialists at the major bank UBS come to the conclusion that such a couple has around 1 million francs less money when they reach retirement age than if they had had no children. Of course there are differences depending on the couple. In short, parents with higher incomes generally have higher costs for their children. This is due to higher payments for external care, lower state benefits and the fact that the children often have longer periods of education.
As statistics show, role models are still very much alive in Switzerland – at least when it comes to the division of employment. In a survey by Swiss Life, respondents said on average that in their opinion a workload of 50 percent is ideal for mothers of small children, while for fathers in the same situation it is an workload of 80 percent. At 30 percentage points, this gender difference is even lower than the 45 percentage points that is currently reality.
Cohabitation agreement, higher pensions – or marriage?
However, constraints also play a role. If fathers and mothers could choose freely, this difference would be more than halved. The question therefore arises as to what couples can do to distribute the burden fairly and avoid gaps in provision.
Conclude a cohabitation agreement: “Many cohabiting couples lack contractual agreements,” says Spring. It cannot be assumed that separations are less common among cohabiting couples than among married couples. That’s why it’s important to think about relationships from the end and to regulate cohabitation contractually.
Spring sees the greatest risk of poverty in Switzerland among single mothers. Consequently, they would have to demand a cohabitation agreement. In some cohabiting couples, the man who works full-time may pay a larger share of the rent or living costs. However, the precautionary measures are still not regulated. “Such women often don’t fare well in the event of a separation.”
Payments into the third pillar: According to the Swiss Life study, the lack of pension equalization and the lack of AHV splitting when a cohabiting couple separates can be at least partially compensated for with third-party funds, for example in pillar 3a or with free assets that are later used for purchases into the pension fund.
Working at higher rates: Financial planner Spring says he recommends that women work at least 70 percent of their time. They should also ask their partner to contribute to looking after the children.
According to the study, mothers in cohabiting couples work more than married mothers. The former have an average professional workload of 58 percent, while the latter only complete an average workload of 45 percent. However, even this is not enough to avoid gaps in provision. This can also be seen when comparing with unmarried fathers: they have an average workload of 90 percent.
But still get married: In order to protect each other, marriage could ultimately be the solution for many cohabiting couples with children. In practice, Spring says, he sees many cohabiting couples who ultimately decide to get married because of the complexity and costs of counseling – even if they didn’t originally want to.