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Step 4: How Can I Make an Early Start on Building My Assets with a Pension Product?
The sooner you start saving with a personal pension, the stronger and more dynamically your assets grow. Therefore, the right time to start is when you are a student.
The Swiss Pension System
The Swiss pension system is based on three pillars. Ideally, these pillars complement each other to provide a comprehensive pension solution that meets your personal needs.
1st Pillar: Basic Standard of Living during Employment and after Retirement
All persons resident or gainfully employed in Switzerland are obliged to be insured with, and therefore make contributions to, the Old Age and Survivors' Insurance (AHV/AVS), Federal Disability Insurance (IV) and Income Replacement (EO) schemes. As of the end of the year in which you turn 17 and are gainfully employed, or 20 as a non-gainfully employed student, you must then start paying the minimum compulsory contribution of CHF 475.-- per annum to the AHV/AVS.
2nd Pillar: For Students with Income CHF 20'880.-- That Is Subject to AHV/AVS.
The 2nd pillar comprises the BVG/LPP (the Swiss Federal Law on Occupational Retirement, Survivors' and Disability Pension Plans) and UVG/LAA (Federal Law on Accident Insurance). The 2nd pillar aims to guarantee a person's usual standard of living in the event of a disability or upon reaching retirement age. Contributions must be made as of the end of the year in which you turn 17 if you have an annual salary of at least CHF 20'880.-- that is subject to AHV/AVS.
3rd Pillar: Individual Pensions
You can benefit from 3rd pillar private pensions if your earned income is subject to AHV/AVS contributions. The 3rd pillar private pension is your personal coverage to supplement the mandatory 1st and 2nd pillars and serves as a pension solution tailored to your individual needs. It is divided into two categories:
- Pillar 3a: tied pension provision
- Pillar 3b: flexible pension provision
In particular, the tied pension provision offers tax advantages: Your contributions can be deducted from taxable income. For the duration of the plan, your Pillar 3a savings are not subject to property tax and income is exempt from income tax. The maximum contributions that you can pay into Pillar 3a may be changed from time to time.
The earlier you start to contribute to a pension plan, the more you benefit from the effect of compound interest.
Sample Calculation: 40 Years' Interest and Compound Interest
You choose a Saving with Securities 3rd pillar and assume a 5% per annum annual interest rate. If you invest a lump-sum of CHF 10'000.-- at the age of 25, by the age of 65 you will have accumulated assets of CHF 70'400.-- thanks to the compound interest effect.
Take the initiative now and calculate your personalized pension situation using the Credit Suisse Pension Calculator for Regular Retirement or the Pension Calculator for Early Retirement . Or contact our experts for a pensions consultation.
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