The Swiss pension system is based on three pillars:
1st pillar: the State pension plan
The State pension plan is mandatory, it is the legal minimum for the entire Swiss population.
It is made up of three insurance policies:
Old Age and Survivors Insurance
Disability Insurance and additional benefits
Income compensation allowance
AVS (old age and survivors insurance)
The AVS insurance replaces part of the salary at retirement age, paying out old-age pensions, survivors' pensions and various allowances.
- This insurance also covers death; a widow's/widower's pension and orphan's pension (up to 18 years of age, or 25 years maximum for individuals undergoing training) will be paid to survivors.
- This insurance also covers accidents that occur before retirement age. Once retirement age is reached, disability insurance is converted into pension benefits.
Everyone living and working in Switzerland who is over 20 years of age is obliged to contribute.
However, there are special cases in which the contribution is waived, e.g. in the case of a salary less than CHF 2,300 per year or in the case of a married couple where one spouse is unemployed, the working spouse contributes at least CHF 956 per year exempting the unemployed spouse from paying contributions!
To find out about the special cases, please visit the AVS website.
All persons who have contributed to the AVS for at least one year will be entitled to this pension.
Anyone who has made continuous payments from the age of 20 until retirement for at least 44 years who has been in receipt of an average annual income of CHF 84,600 or more will be entitled to a full pension.
If the length-of-payment criterion has not been met, payments will be calculated in proportion to the years worked in Switzerland.
If the minimum-wage criterion has not been met, you will not receive a full pension, even if the length-of-payment criterion has been met.
APG (income compensation allowance)
APG insurance allows you to supplement your AVS or AI, in the event that the minimum wage is not covered.
2nd pillar: occupational pension plan
Joining an occupational pension plan is mandatory for all Swiss company employees earning a minimum wage of CHF 21,150 per year from the age of 17.
Contributions are paid by both the employer and the employee on an equal basis. The employee's contribution is deducted directly from his or her wages, while the employer's contribution is entirely covered by the employer. In addition to your salary, your employer contributes to your pension plan. Some companies contribute more than the employee's contribution. This is an issue you can discuss with your employer.
The 2nd pillar insurance complements the AVS insurance and ensures the constitution of capital at retirement that allows you to maintain your previous standard of living. Upon retirement, the capital accumulated by the 2nd pillar can be paid out in the form of a pension or the form of capital, depending on which the employee chooses. We would recommend consulting the pension fund regulations to find out all the options available.
According to the Occupational Pensions Act (LPP), the maximum amount of wages insured is CHF 84,600 and applies in the case of disability or death. This amount reflects the average salary in Switzerland.
People with higher incomes or who are self-employed should consider alternative options to ensure a sufficient additional income.
3rd pillar: private pension plan
Although joining a private pension plan is not mandatory, it is enshrined in the Swiss Constitution and constitutes the 3rd pillar of the pension system. This is why the Swiss government encourages private pension plans with tax deductions.
Signing up for 3rd pillar is subject to residence in Switzerland.
Each individual chooses a 3rd pillar capitalisation scheme and saves for his or her own retirement, unlike the 1st pillar. The amounts can be paid into a bank account or a life insurance policy.
The 3rd pillar should make it possible to maintain one's usual standard of living upon retirement, given that the 1st and 2nd pillars cover around 60% of the last paid wage.
And since the maximum salary that is 100% covered by the 1st and 2nd pillars is CHF 84,600 per year, the loss of income is even greater for higher annual salaries.