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Pensions in Switzerland
The Swiss pension system is composed of legal, professional and private pension funds. These protect people of retirement age as well as acting as life and income protection insurance. The individual pillars represent the following precautionary areas:
- 1st pillar as state pension
- 2nd pillar as occupational pension
- 3rd pillar as private provision
1st pillar - The legal pension
The first pillar consists of invalidity, old-age and survivors' insurance and supplementary benefits (IV, AHV and EL), whereby the AHV is decisive for the pension. They are intended to cover the basic life costs of the insured person in the pension age. This is a pay-as-you-go national insurance, in which membership is compulsory for all persons living in Switzerland. The employee's contribution is deducted by the employer from wage payments and transferred to the compensation funds with the employer's share.
The amount of the pension is determined by the years of contributions and the average annual income. If gaps arise during the payment to the AHV, the amount of the pension is directly reduced. As a rule, the pension reduction is at least 2.3 percent for each missing year, and the full pension is paid to those who pay from the age of 20 to the retirement age (65 years fo men, 64 years for women). Pension calculation also takes into account educational and care credits. In addition, the pension has upper and lower limits, whereby the maximum pension can only be twice as much as the minimum pension. These caps are constantly adjusted.
2nd pillar - The occupational pension plan
While the function of the first pillar is an existential security, payments to the second pillar are intended to enable a lifestyle comparable to that of one's working life. The pension income from the 1st and 2nd pillar should be about 60 percent of the person's last wage. Insurance in the 2nd pillar is compulsory for employees, who already belong to the 1st pillar and whose income is at least CHF 21'330 (as of 2019). On the other hand, insurance is voluntary for self-employed persons. In addition to the retirement pension in the second pillar, disability and survivors cover are also insured.
From the age of 25 onwards, the savings phase begins, in which the insured person deposits an interest-bearing retirement savings account to an individual account (pension fund) in accordance with the capital cover procedure. Over an annual conversion rate of 6.85 percent for men and 6.80 percent for women (as of 2015) the old-age credit flows into the retirement pension. The retirement savings consists of contributions from both employers and employees and is paid into the pension funds. The share of the employer must be at least as high as the shares of all employees employed in the company.
The third pillar - Private provision for the same standard of living
Anyone who does not want to lose any of their livelihoods is generally dependent on private retirement retirement provisions for the pension in Switzerland. This is particularly true of high incomes as the system-related care gap in the first and second pillar increases with the level of income. Within the 3rd pillar, a distinction is made between the tied (3a) and the free pensions (3b).
3a: Monies can be paid either in fixed-interest forms of investment or in investment funds. The state supports this with tax relief. In the case of persons who are part of a professional pension scheme (2nd pillar), the tax-deductible amount of CHF 6826 (as at 2019) is deductible. In the case of persons who are not part of a pension scheme at CHF 34128 (as of 2019). The amount indicated is assigned.
3b: In the free pillars, all forms of investment which cannot be tax-favoured are grouped together. This may include equity funds, bonds or even commodity investments. The capital invested here is not purposeful. The provisions of the respective financial product apply solely to his or her disposal.
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