Old-age poverty in Switzerland: situation, causes & prevention

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In many industrialized countries, it is a sad truth that people are poor in old age. However, between the countries of the OECD, i.e. highly developed countries, the range of poverty in old age is enormous. In one country, only three percent of the population over the age of 66 falls below the poverty line, while in another, nearly half of the people fall below it. According to the OECD, almost one in five Swiss citizens over the age of 66 is poor. With a reported 19.5 percent, Switzerland ranks tenth among the 38 member states.

A differentiated picture can already be observed in the countries bordering Lake Constance. Statistics for Germany and Austria show that older people there are just as likely to be affected by poverty as the population as a whole. Just under nine percent of the Swiss are considered poor, while among older people this figure is about twice as high.

If you want to avoid poverty in old age in Switzerland, you should find out about the causes in order to avoid the risk. In this way, solutions can be found in good time to avoid poverty after retirement and to avoid having to live on the edge of the subsistence level.

The most important facts at a glance

• On average, individuals in Switzerland had to come up with 2,279 francs per month in 2020 in order not to be considered poor.
• Also considered poor is a household consisting of two adults plus two children under the age of 14 if it has 3,963 francs or less available each month.
• In Switzerland, almost one in five people over the age of 66 is affected by old-age poverty.
• Those who begin to take advantage of the opportunities offered by the third pillar of the Swiss pension system in good time can protect themselves against poverty in old age.

Definition of poverty: When is a person poor?

There is no single definition of poverty, but it can be said that poverty is predominantly a financial matter. People who are poor often have no or very little income and assets. As a result, they often have worse living conditions and life opportunities than people who are not poor.

Accordingly, poverty also means not reaching the minimum standard of living that is acceptable in a country. This standard, however, is of course different in different countries and also depends on the respective society.

So it does not always have to concern material things. Sometimes needs such as education, health or security are also relevant. Poverty often also leads to exclusion from social life and social isolation. First of all, therefore, a distinction must be made between the terms absolute and relative poverty.

Absolute poverty

The so-called absolute poverty concept describes poverty as a condition in which one earns less than is necessary for a socially accepted life in the respective country. In Switzerland, absolute poverty is based on the guidelines of the Swiss Conference for Social Welfare (SKOS), which include the monthly costs of living, housing and an additional 100 francs per person per month from the age of 16.

Accordingly, a person is considered poor in Switzerland if he or she has a maximum of 2,279 francs per month at his or her disposal. A family consisting of two adults and two children has a maximum of 3,963 francs at its disposal.

Relative poverty

Poverty is measured in relative terms by looking at the distribution of wealth in the population as a whole. The usual poverty thresholds are 50 or 60 percent of the median income available to people. An at-risk-of-poverty rate indicates the proportion of the total population that is at risk of poverty.

In Switzerland, the Federal Statistical Office classifies the poverty line at 60 percent of the income of Swiss households. The at-risk-of-poverty threshold for a one-person household in 2020 is 30,072 Swiss francs per year. This limit corresponds to 15.4 percent of the population of Switzerland.

Material deprivation

A so-called material deprivation is defined according to a financial shortage in three of nine coordinated categories across Europe:

• being able to incur unexpected expenses of 2,500 francs in one month
• one week’s vacation per year (away from home)
• no arrears
• a meal with fish or meat every two days (alternatively vegetarian meal)
• sufficiently heated apartment
• possibility to use a washing machine
• color TV
• telephone
• car

According to the Federal Statistical Office, this circumstance applies to 4.3 percent of the Swiss. (as of 2020).

Supplementary benefits (EL)

The supplementary benefits (EL) to the AHV and IV (IV) are intended to meet minimum living costs if the pension and income cannot cover them. In this case, one has a legal right to EL. These are part of the social foundation of Switzerland.

There are two categories of supplementary benefits paid by the cantons:

• annual benefits with monthly payment
• payment of sickness and disability costs

Information is provided by the responsible cantonal EL offices. These are usually the cantonal compensation offices or their municipal branches.

Poverty in Switzerland: who is affected?

• 8.5 percent of the Swiss were affected by income poverty in 2020, which corresponds to 722,000 people.
• The current poverty rate has thus not changed significantly compared to the previous year (8.7 percent). It was 9.3 percent in Switzerland in 2007 and fell to 5.9 percent in 2013, but it had already risen again to 6.7 percent in 2014.

The most recent survey by the FSO shows that the general standard of living in Switzerland is very high from then on. However, these data predate the impact of the Covid 19 pandemic.

At-risk-of-poverty rate in Europe-wide comparison

With the at-risk-of-poverty rate used internationally, poverty in Switzerland can be compared with other countries. As of 2020, this amounts to:

• 20.0 percent in Italy
• 16.6 percent in the EU (average)
• 16.1 percent in Germany
• 15.5 percent in Switzerland
• 13.8 percent in France
• 13.9 percent in Austria

Who is disproportionately affected by poverty in Switzerland?

The risk of poverty depends in particular on the family situation as well as education. This is shown by the poverty rates of the Federal Statistical Office for 2020:

Family Situation:

• Single-parent households (26.8 percent)
• couples with three or more children (24.4 percent)
• People under 65 living alone without children (16.3 percent)
• Couples with two children (11.8 percent)
• Couples under age 65 with no children (6.6 percent)

Education:

• Persons with a compulsory school education (27.6 percent)
• Persons with a tertiary education (8.2 percent).

The special case of old-age poverty

Retired persons are a special group very exposed to the risk of poverty (21.5 percent), especially as persons living alone (28.4 percent). After ending active employment, people in Switzerland rely particularly heavily on their assets to finance their living expenses.

Major causes of old-age poverty

Statistics on current old-age poverty in Switzerland reveal some striking causes of poverty in old age.

Education

The main causes of rising old-age poverty include a lack of education and the fact that more and more people are living in precarious jobs. If people do not have sufficient education, they can only find jobs with low wages. As a result, they do not have enough money to finance their lifestyle even in old age.

Single parent

Women in Switzerland are more at risk of poverty in old age than men. This is mainly due to the living conditions of women, who are more often single parents and subject to lower labor force participation.

Single households

Single-person households are the most common form of living in Switzerland, accounting for 36.4 percent of private households (as of 2020). According to the Federal Statistical Office (FSO), this trend will continue to increase in the future. The FSO cites declining birth rates and increased life expectancy as the main reasons for the rise in smaller households.

As a result, more and more people will have to support themselves alone. This also increases the risk of poverty in old age in Switzerland.

Lack of old-age provision

The poverty statistics of the FSO make the relevance of the use of second and third pillar pension options very clear. While the poverty rate of pensioners who draw their main income from pillar one is over 20 percent, the rate already drops by more than half if the main income comes from pillar two. You can achieve a similar effect with priority income from assets.

Please also read our:

• insider tips on pillar 3a
• insider tips on pillar 3b

Corporate bankruptcies

A study by credit insurer Allianz Trade says that an increasing number of insolvencies can be expected worldwide and also in Switzerland in the future. Creditreform, the credit information agency, also expects a similar development after the end of the Corona measures. Some countries, including Switzerland, have already seen an increase in insolvency figures.

Strokes of fate such as loss of job or illness

Strokes of fate such as the loss of a job or serious illness can lead to people being poor in old age. In this context, the current low unemployment rate of around two percent is a positive sign. Switzerland has also looked excellent in an international comparison for decades.

Serious illnesses can also lead to people being poor in old age. Many older people have chronic health problems. These health problems can cause them to lose their jobs and slip into poverty in old age.

Money in old age – preventing poverty

Within the social insurances of Switzerland, the first pillar with the old-age and survivors insurance (AHV) serves to secure the existence. Practice shows: The AHV is not sufficient to protect against poverty in old age in Switzerland.

With the occupational pension from pillar two, together with the AHV pension, you secure about 60 percent of your income in old age. Incidentally, half of all retirees have their pension fund assets paid out. This is a particularly flexible way of avoiding “material deprivation” in old age.

The figures clearly show that if you want to effectively prevent the threat of poverty in old age, you need to take personal responsibility. This means taking advantage of the opportunities offered by pillar three with state support.

Help and social counseling – when poverty is already acute

People affected by old-age poverty can find a number of services in Switzerland where they can get help.

Key points of contact are:

• Pro Senectute (largest organization for old-age issues in Switzerland).
• Swiss Red Cross
• Cancer League
• Pro Infirmis (national umbrella organization in Switzerland for people with physical and mental impairments)
• Caritas Switzerland
• Church congregations

Conclusion: Building up retirement provisions in good time and according to plan

The earlier you start saving for your individual retirement, the easier it will be. After all, you will have the time factor on your side.

Thanks to the returns on the capital market, the second and third pillars can finance higher pension payments with lower contributions than the first pillar. However, the two funded pension systems are subject to greater fluctuations than the first pillar. The first pillar therefore makes a significant contribution to security, and you can generate an adequate return with third-pillar financial products.

Individual retirement planning with third-pillar financial products

Demographic trends, rising wages and longer life expectancy are leading to a shift in the ratio between pay-as-you-go and funded pension systems. For the 3-pillar principle, this means that the importance of private pension provision in the third pillar is increasing. In Switzerland, this is the most effective protection against poverty in old age.

However, due to the low level of interest rates, classic interest investments are no longer able to compensate for inflation. This has led investors to look for high-yield investments that have an acceptable level of risk. Fintechs in particular offer a wide range of such solutions.

The development of the market has ensured that today you can call on professional help with your retirement planning. Digitalization has made competent wealth planning accessible to broad sections of the population.