Retirement provision in Switzerland. The three-pillar principle explained simply.

Ensuring a Basic Standard of Living
The goal of the 1st pillar (state pension) is to cover the basic needs of pension recipients, disabled persons, and surviving dependents. It forms the basis of Switzerland's three-pillar system and provides benefits during retirement as well as in the event of disability or death. The state pension comprises the Old Age and Survivors' Insurance (AHV), Disability Insurance (IV), and supplementary benefits (SB). It is obligatory for everyone residing or gainfully employed in Switzerland.

Old-age and Survivors Insurance As a general rule, all persons insured under the AHV must pay contributions. This includes both gainfully employed and non-gainfully employed persons. The contributions are deducted directly from the salary by the employer and transferred to the compensation office. Persons who are not gainfully employed and self-employed persons are required to report to the compensation office themselves. The minimum AHV pension amounts to CHF 14,220. The maximum AHV pension stands at CHF 28,440 for single persons and CHF 42,660 for married couples.

Federal Disability Insurance Like the AHV, the Federal Disability Insurance is obligatory. It supports disabled persons with integration efforts and cash payments for ensuring their livelihood. In principle, everyone who lives or works in Switzerland is covered.

Supplementary Benefits Supplementary benefits to the AHV and IV become relevant whenever pensions and income are insufficient to cover the minimum cost of living. Supplementary benefits are a legal entitlement and should not be confused with public aid or welfare.

Ensuring the Accustomed Standard of Living Because the 1st pillar only covers a minimum basic standard of living, Switzerland introduced the Federal Act on Occupational Retirement, Survivors' and Disability Pension Plans (BVG) on January 1, 1985. AHV (1st pillar) and BVG (2nd pillar) should cumulatively account for 60% of the final salary. The law sets the minimum. This is referred to as the "mandatory employee benefits insurance." Individual pension funds can offer additional benefits. These are referred to as "extra-mandatory employee benefits insurance."

Mandatory Employee Benefits Insurance Employee benefits insurance is prescribed by law for employees in Switzerland earning salaries above CHF 21,330. As with the AHV, both the employer and employee must pay into the 2nd pillar together. Part of these funds will be saved towards the retirement capital. The rest is used to cover disability and surviving dependents. Self-employed persons have the option of voluntarily joining a pension foundation. Persons who are not gainfully employed do not have this option.

Extra-Mandatory Occupational Benefits Insurance The maximum salary amount that can be insured with the mandatory employee benefits insurance currently stands at CHF 85,320. Pension funds can insure additional benefits beyond this. In contrast to the mandatory employee benefits insurance, for which a minimum interest rate is guaranteed by law, pension funds are free to determine interest rates for extra-mandatory employee benefits insurance.

Filling in the Gaps The benefits from the 1st and 2nd pillars (mandatory benefits) cover between 60% and 70% of the previous income in old age, although only up to an amount of 85,320. The 3rd pillar provides the option of closing gaps in the 1st and 2nd pillars individually in order to enjoy retirement without financial worries. Here, a distinction is made between Pillar 3a and Pillar 3b.

Tied Pension Provision Pillar 3a is voluntary and individual. It is available only to persons with income subject to AHV contributions, and it enjoys particular tax privileges. Contributions to Pillar 3a may be deducted from taxable income up to a maximum amount per year. The pension capital from Pillar 3a can only be drawn in advance in specific, legally determined cases, such as for owner-occupied residential property.

Flexible Pension Provision Pillar 3b comprises all personal savings that are not included under Pillar 3a. This includes assets like savings accounts, investment funds, and residential property. As a general rule, Pillar 3b is not affected by any statutory requirements. For this reason, it is also referred to as "flexible pension provision." In contrast to Pillar 3a, there are no tax advantages for Pillar 3b (with some exceptions).