Retirement provision in Switzerland: The 3-pillar pension scheme
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Swiss retirement provision is based on a 3-pillar pension scheme. This three-pillar principle underpins a pensions sector which is partly statutory, partly occupational and partly private. The 1st and 2nd pillars are largely mandatory while the 3rd pillar remains entirely voluntary and private. First pillar provision consists of the state retirement pension and survivors' benefits (AHV), invalidity benefit (IV), loss of earned income during maternity or military service (EO), as well as unemployment benefit (ALV), which are all funded via contributions from employers and employees. At 2nd-pillar level, there is an occupational pension scheme where contributions are mandatory for those whose annual income exceeds CHF 22'050 (as of 2023), and the 3rd pillar is a voluntary private pension, which (in part) qualifies for tax relief.
Mandatory retirement pension provision under pillars 1 and 2
Every Swiss citizen and worker automatically pays 1st pillar contributions – for AHV, IV, ALV and EO – so that basic subsistence-level benefits can be provided. This ensures that women from the age of 64, and men from 65, can receive a state pension. Pillar 1 is funded through a ‘pay-as-you-go’ system and is based on the solidarity principle whereby the young pay for the old, the better-off help the low-paid, and current pensions are funded from current income.
The 2nd pillar is intended to supplement pensions from the 1st pillar in order to secure family living standards during retirement, or when these are threatened by invalidity or premature death. It consists of accident insurance (supplemented by the pillar 1 invalidity insurance fund) and daily sickness benefits. Employee contributions begin at age 17, and are mandatory in the 2nd pillar if the insured person is already making 1st pillar contributions and has an annual income which exceeds CHF 21'510. Individuals and employees with fixed-term employment contracts of up to 3 months duration are not automatically insured. However, they can opt to join the scheme on a voluntary basis and will qualify for the minimum provision.
Swiss 3rd pillar private pension
While the purpose of pillars 1 and 2 is to create a retirement pension which meets the needs of those entering retirement, the 3rd pillar is designed to help maintain a good standard of living during that retirement. Those who start saving for a 3rd pillar private pension in good time can benefit from tax advantages, because pillar 3a pension contributions qualify for tax relief.
- Pillar 3a: Restricted private pension provision with tax advantages
A pillar 3a type of investment – such as a restricted pension scheme agreement with a bank, or with an insurance company – will require regular contributions. Any capital which accumulates cannot be accessed before retirement, other than in a few exceptional circumstances – for example, the amortization of a mortgage. However, current tax regulations do allow tax relief on pillar 3a contributions.
- Pillar 3b: Unrestricted private pension provision
Unlike pillar 3a arrangements, voluntary provision via Pillar 3b is not linked to any specific types of pension contract and your accumulating capital assets can be accessed at any time. However, a pillar 3b contract does not qualify for tax relief. This provision is a means to set aside additional capital reserves for your retirement if you can afford to do so and have already paid the maximum amount allowable under pillar 3a, or wish to retain your right to access the capital you plan to save.
Optimising your retirement pension planning
When it comes to retirement provision there are so many options it can be difficult to keep track of things, let alone choose the best investment. Our MoneyPark experts can offer you independent advice to help you find the optimal type of investment for your retirement pension provision in Switzerland. Any solutions we may suggest will be carefully tailored to meet your needs and will accommodate your personal and financial requirements. Simply arrange an appointment with a MoneyPark consultant in your local area.
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