Switzerland's 3-pillar model

Pension savings in Switzerland. The three-pillar principle explained in simple terms.

The Swiss pension system, also known as the three-pillar principle, consists of three pillars. . The public pension scheme (AVS), the occupational pension scheme (LPP) and the individual pension scheme (pillar 3a/b) together form the solid framework for comprehensive pension savings. Pension savings in Switzerland explained simply.

Maintain your standard of living with the three-pillar principle.

The Swiss three-pillar pension system is one of the most advanced in the world. It is based on three pillars: public pension scheme (AVS), occupational pension scheme (LPP) and individual pension scheme (pillar 3a/3b). The existing 3-pillar system is established in the Federal Constitution (Art. 111) and aims to maintain the usual standard of living on retirement or in the event of death or disability, for oneself or one's survivors.

  • The 1st pillar guarantees the minimum standard of living.
  • Together with the 2nd pillar, it is supposed to cover 60% of the former income at retirement age.
  • The 3rd pillar complements the 1st and 2nd pillars and contributes to the preservation of the usual standard of living.

Pension savings in Switzerland: The three-pillar system explained simply

This video briefly and simply explains how the 3-pillar system is structured. Find out how you can guarantee your standard of living and more.

The three-pillar system explained simply

To learn more about the different modules with which the Swiss “pension structure" is built, click on the corresponding arrows in the graphic below.

The three-pillar principle
1st pillar: Public pension
Guarantees the minimum standard of living
The 1st pillar aims to cover the basic financial needs of the beneficiaries of old age, disability or survivors' pensions. It allows for the payment of benefits in the event of retirement, disability or death. It consists of old age and survivors' insurance (AVS), disability insurance (AI) and supplementary benefits (PC). All persons who are employed in Switzerland as of January 1 following their 18th birthday, as well as persons who are not employed as of January 1 following their 21st birthday, are subject to contributions. The obligation to contribute ends at the ordinary retirement age.
Old age and survivors’ insurance The objective of the AVS scheme is to guarantee a minimum standard of living in the event of retirement or death. It is based on the pay-as-you-go system, i.e. all those who currently contribute to the AVS finance the benefits of current retirees and survivors. The contributions of employees are deducted directly from their salary by the employer, who transfers them to the compensation fund. Non-employed persons and self-employed persons must register with the compensation fund themselves. The minimum annual AVS pension is CHF 14,340. The maximum annual AVS pension is CHF 28,680 for single persons and CHF 43,020 for married couples. (situation in 2022)
Disability insurance The AI assists disabled persons by means of rehabilitation measures and the payment of pensions to guarantee their standard of living.
AI benefits:
- Measures to prevent health problems
- Rehabilitation measures
- Disability pensions
- Care allowance
Supplementary benefits The supplementary benefits of the AVS and AI come into play when the pensions and income do not cover the minimum standard of living. Supplementary benefits are a legal right, not to be confused with social assistance or aid.
2nd pillar: Occupational pension
Maintenance of the usual standard of living The Federal Law on Occupational Retirement, Survivors' and Disability Pension Plans (LPP) aims to guarantee the usual standard of living. The 2nd pillar is composed of the "compulsory pension» and the"supplementary pension". Combined with the AVS (1st pillar), it should cover 60% of the last salary.
LPP above the legal minimum
Compulsory pension Contributions are used to build up retirement capital and to provide coverage in the event of disability and survivors. The occupational pension is compulsory for employees in Switzerland with an annual salary of CHF 21,510 or more: both employers and employees pay into the 2nd pillar. Self-employed persons have the option of voluntarily joining a pension scheme. People who are not employed do not have this option.
Supplementary pension The maximum salary that can be insured by the compulsory occupational scheme is currently CHF 86,040. However, pension funds can insure a higher salary. In contrast to compulsory occupational pension schemes, where the law guarantees a minimum interest rate on retirement assets, pension funds are free to apply a different interest rate for supplementary pension schemes.
3rd pillar: Individual pension
Filling in the Gaps In principle, the 1st and 2nd pillars should cover 60% of the last salary. However, in order to maintain the usual standard of living in retirement, most people need at least 80% of their last salary. With the 3rd pillar, it is therefore possible to voluntarily improve the individual pension provision and to compensate for one's own shortfalls in the 1st and 2nd pillars. A distinction is made in this respect between Pillar 3a and Pillar 3b.
Pillar 3a
Pillar 3b
Tied pension plan Pillar 3a is a voluntary individual pension plan for people with an income subject to AVS. It is supported by the State by means of considerable tax advantages. The amounts paid into the 3a pension plan are deductible from taxable income up to the legal maximum amount. Pillar 3a pension assets can only be withdrawn early in certain cases defined by law, for example to finance home ownership.
Free pension plan Pillar 3b covers all forms of individual savings not included in Pillar 3a. This includes, for example, savings accounts, investments in securities and real estate. Pillar 3b is generally not influenced by government requirements. It is therefore also called "free pension plan". In contrast to the tied pension plan, there are no tax advantages in Pillar 3b (except in some cantons).

Identifying and closing shortfalls in Swiss retirement savings

Pension shortfalls in the 2nd pillars lead to a lifetime reduction in pension. The following options are available to protect yourself against this or to make up for existing shortfalls:

  • You can pay the missing AVS contributions within five years.
  • If there are shortfalls in your 2nd pillar coverage, you can buy into your pension fund.
  • The individual pension Pillar 3a is an effective solution to build up retirement assets and close shortfalls. If possible, pay in the maximum annual amount.