Maximum AHV Pension: That's What Counts
What factors influence the amount of a person's AHV retirement pension, and how do they receive the maximum pension?
The Old Age and Survivors' Insurance system, or AHV, accompanies us our entire working lives. However, most people pay little or no attention at all to it. It's no wonder. Contributions to the AHV, the first pillar of Switzerland's three-pillar pension system, are mandatory and automatically deducted from an individual's wages upon employment.
At present, the monthly amounts for an AHV retirement pension are as follows:
|Maximum (married couple):||CHF 3,555|
There is a ceiling on pensions paid to married couples. That means the AHV retirement pension of a married couple may not exceed 150% of the maximum pension for an individual. The two single persons' pensions are reduced proportionately and then paid out separately.
To receive the maximum pension, the following conditions must be met:
- The AHV contributions have been paid in with no gaps from January 1 of the year after the person turns 20 until he or she reaches normal retirement age (65 for men and 64 for women), i.e., for a total of 44 or 43 years, respectively.
- The average gainful employment income during those years has been at least 85,320 Swiss francs per year (7,110 Swiss francs per month). The stated amount is the inflation-adjusted income. It is calculated using a so-called revaluation factor.
For each year in which no contributions were made to the Old Age and Survivors' Insurance system, a man's pension is reduced by 1/44 and a woman's by 1/43.
As a rule, every person of working age residing in Switzerland is required to contribute to the AHV system. This obligation also applies to people who work in Switzerland but have their place of residence in a different country, such as cross-border commuters. Married individuals who are not gainfully employed are insured through their spouses from the time they get married, as long as the spouse contributes twice the minimum amount toward his or her Old Age and Survivors' Insurance. For gainfully employed persons, the obligation to pay contributions begins on January 1 of the year after they turn 17. Individuals who are not gainfully employed – students, for instance – are required to start making contributions no later than January 1 of the year after they turn 20.
The amount of their AHV contributions is determined by the type of gainful employment they have:
- Employee: 8.7% of gross salary, with half being paid by the employer
- Self-employed person: 8.1% of the annual income, with a lower rate applying to incomes of less than CHF 56,900
- Individual not gainfully employed: minimum contribution of CHF 496 per year, depending on any pension income and assets
Contribution gaps are the biggest obstacle to receiving the maximum AHV retirement pension. Below are the most common reasons for gaps in contributions:
- Staying abroad
- Going to college
- Numerous, short-term jobs with different employers
- Divorce by individuals without gainful employment who then fail to make the minimum contributions from that point on
- Spouse's retirement
- Employer's failure to forward AHV contributions
Yet, even if you have contribution gaps, you may be able to achieve the maximum amount:
- You have five years from the time a gap has been created to make up for missing contribution years.
- The "family manager" who was not gainfully employed benefits from the credits received for the years that they spent raising the children under the age of 16.
- Individuals who complete an apprenticeship can receive credit for their "youth years."
- Exemptions are granted for contribution gaps created before 1979.
Higher Pension Thanks to Voluntary Third Pillar
If you fail to reach your maximum AHV pension, you have the option of supplementing your pension assets with the voluntary and private third pillar or postponing the date you begin drawing a pension in order to achieve a higher pension.