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The task of the AVS (national social fund for retirement, 1st category of insurance) and of the contingency funds (2nd category) is to allow pensioners to keep up a suitable standard of living after retirement. As a social security task, it must be achieved for low-income people mainly. However, this task is not fully achieved yet and the legislation on 1st and 2nd category must still undergo modifications, which are widely related in the press. For instance, some low-income people still cannot afford a 2nd category insurance. The 3rd category insurance is also a contingency fund, but its task is a little different, since it is supposed to meet personal complementary needs and it is not obligatory. The three categories system of the Swiss contingency funding system has many advantages, such as using several different financial systems so that the faults of each one are not cumulated. For instance, the 1st category insurance works by distribution (active people pay for the current pensioners), while the 2nd category is not affected by demographic evolution, since it is works by capitalization (active people pay for their own retirement). However, the three categories system has a major disadvantage: lack of transparency. It is difficult for a policy-holder to estimate his income after retirement. This is why it is necessary for him to get information about his future income, the sooner the better. If the estimated income is too low, it will be necessary to prepare another saving process, such as a 3rd category insurance. The best way is to evaluate the post-retirement income and to compare it with the estimated future needs. Don’t hesitate to ask for advice and proposals from insurance professionals. It’s their job!
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