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- Pension planning
- Occupational pensions
Occupational pension provision (OPA)
Federal Act on Occupational Old Age, Survivors' and Invalidity Pension Provision
OPA is the abbreviation for the Federal Act on Occupational Old Age, Survivors’ and Invalidity Pension Provision. The law entered into force in 1985 and governs occupational pension provision, in other words the second pillar in Switzerland’s three-pillar system. The pension provision brings together all measures that allow older people, surviving relatives and disabled people to continue their accustomed standard of living in the event of an insurance claim such as old age, death or invalidity together with the benefits from OASI and IV (first pillar). Unlike for the first pillar, every person in the second pillar has their own retirement savings which bear interest.
Compulsory benefits under the OPA
As the second pillar is occupational pension provision, employees whose income is at least CHF 21,510 a year are insured. Their death and disability cover begins on 1 January after they reach 17 years of age and saving for retirement begins on 1 January after they reach 24 years of age. The entry threshold for compulsory insurance under the OPA is a salary of CHF 21,510. However, only the portion of the salary from CHF 3585 up to and including CHF 60,945 is insured. This portion is called the coordinated salary or the OPA salary. If the coordinated salary amounts to less than CHF 3,585 per year, this amount is still covered.
The OPA provides that employers that employ people with an insurance obligation must set up a provision institution or join one.
Although the salary portion above the non-mandatory OPA limit of CHF 60,945 is not insured by law, it can be covered by the pension fund as a non-mandatory portion.
For more information about pension funds, please click here.
Those in self-employment can take out voluntary insurance with an insurance union or the OPA Suppletory Institution Foundation. If they do not do this, they have the possibility of paying higher contributions into pillar 3a than an employee subject to OASI would be able to. In 2021, the maximum permitted amount a person could pay in is 20% of their income and a maximum of CHF 34,416 per year.
Retirement savings in the second pillar are made up of annual old-age credit paid until retirement age. The employee and employer normally each pay half of the amount. The amount of old-age credit increases gradually with age. If only seven per cent of the OPA salary is paid into the second pillar between the ages 25 and 34, 18 per cent will be paid from 55 years of age to retirement age. Up until retirement, these retirement savings bear interest at an interest rate set by the Federal Council every year (currently one per cent).
The retirement savings are normally paid out with a pension when a person reaches retirement age – 65 for men and 64 for women. The pension amount is calculated using a conversion rate, which is currently set at 6.8 per cent. Retirement assets of CHF 100,000 thus amount to an annual pension of CHF 6,800. Partners’ pensions and retired persons’ children’s benefits are also insured.
Risk benefits: survivors’ and disability pensions
In addition to the savings portion, a risk portion is also covered with occupational pension provision. The risk insurance comprises benefits in the event of disability and death and the cover starts on 1 January after a person’s 17th birthday.
If a person is unable to work, a disability pension will be paid out after a waiting period of 12 months. The pension amount is made up of the retirement savings already available and future old-age credit (excluding interest, however). This sum will then be multiplied by the OPA conversion rate valid at the time. People who are unable to work are exempt from further contribution obligations but are still covered in the event of death.
If someone dies, the surviving spouse or registered partner is entitled to 60 per cent of the full disability pension, provided that they are responsible for the support of a child or are older than 45 years of age and the marriage or registered partnership has lasted more than five years. The children are also entitled to a child’s pension, which amounts to 20% of the full disability pension.
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