The aim of the three-pillar concept is to maintain the accustomed standard of living for you and your family during retirement, or in the event of disability or death.
The more you understand the Swiss pension system, the better you can make provision for your retirement or for a change in circumstances through disability or death.
Pillar 1 – Securing your basic standard of living
The first pillar of the Swiss pension system is the state pension and comprises Federal Old Age and Survivors' Insurance (known in German and French as AHV/AVS) and Federal Disability Insurance (IV/AI), as well as supplementary payments. It is compulsory and ensures a basic standard of living during retirement or in the event of disability or death. Everyone who lives or works in Switzerland is covered under the first pillar pension scheme, though there are compulsory rules for AHV/AVS coverage.
Living abroad while abroad
If you leave Switzerland to live abroad for some time but plan to return to Switzerland afterwards, you can voluntarily choose to continue paying AHV/AVS contributions under certain conditions. This helps you to avoid gaps in coverage that would lead to lower benefits later on, though you can still fill these gaps up to five years later. Additionally, special conditions apply to gainfully employed persons domiciled abroad, who work for an employer with its registered office in Switzerland.
You can obtain more detailed information on voluntary AHV/AVS contributions from your embassy or consulate in Switzerland.
How it generally works
As an employee, your contributions are deducted from each salary payment by your employer and transferred to the compensation fund along with your employer's contribution. If you aren't gainfully employed or if you are self-employed, you are responsible for notifying the compensation fund and for making your contributions yourself.
Overall, the first pillar functions as a "pay-as-you-go system." Money paid in today is paid out directly as current pensions. In other words, it is not saved for your future, but forms an ongoing provision between working people and pensioners.
Pillar 2 – Securing your accustomed standard of living
The second pillar of the pension system is the occupational pension (known in German and French as BVG/LPP). The Federal Act on Occupational Retirement, Survivors', and Disability Pension Plans (BVG/LPP) stipulates the minimum requirements for mandatory occupational benefits insurance. However, most pension schemes also offer extra-mandatory benefits, i.e. in excess of the legally required minimums. Each pension fund has its own (often complex) regulations that explain all of the benefits, but these can be very complicated for non-experts to understand.
The first and second pillars together are, by law, intended to secure approximately 60% of your final salary. It is an entirely personal decision as to whether you feel this will provide sufficient financial security for you during retirement.
To whom it may concern
If you are employed and earn an AHV/AVS salary greater than CHF 21,150 you must be insured under the second pillar. The risks of death and disability are covered after the insured reaches the age of 17, and retirement benefits are also covered after the insured reaches the age of 24. Employees who earn less than CHF 21,150 can be insured if the regulations of the pension fund allow for this and if the employer agrees and contributes accordingly.
By contrast, if you are self-employed, you are free to join and contribute to a second pillar plan. In addition, unemployed persons that meet the criteria for daily unemployment benefits might also be eligible for insurance under the second pillar for the risks of death and disability. Should you be uncertain, contact your cantonal AHV/AVS here.
Further information about pension insurance certificates can be found here.
Pillar 3 – Ensuring a comfortable standard of living
The third pillar complements the first and second pillars and covers your personal needs. It is divided into tied pension provision (pillar 3a) and flexible pension provision (pillar 3b).
Pillar 3a – Tied Pension Provision
Pillar 3a is available to those with an earned income that is subject to AHV/AVS contributions. To encourage people to build up their private pension, the Swiss state offers preferential tax conditions for this form of provision: Pillar 3a contributions are deductible from your taxable income, although there is a maximum allowance per year that you can save. In return, you are only allowed to withdraw money from your 3a account for specific reasons defined by law (e.g. buying your own property or leaving Switzerland). Your bank can, however, provide you with further advice.
Pillar 3b – Flexible Pension Provision
You can structure your flexible pension provision as you wish, since it is generally not subject to any government requirements. Pillar 3b comprises all personal savings that are not included under pillar 3a. How you save in pillar 3b is entirely up to you. You might want to use savings accounts, bonds, money market investments, shares, investment fund units, life insurance policies or residential property to build up your retirement provision. Unlike pillar 3a, however, pillar 3b offers few, if any, tax benefits.
Good to know
Watch this video introduction to the Swiss pension system:
To learn more about pensions, please see here.
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