The Swiss pension system is based around a three pillar system. This is similar to others throughout the world: the first pillar is a state backed pension designed to provide a minimum income; second pillars are occupational plans, and third pillars are private pension schemes.
First Pillar (Premier Pilier)
The Swiss Government has been running a state scheme since 1959 which provides anyone who has contributed into their AHV/AVS* system, a form of tax, a basic state pension when they reach retirement age. The current Swiss retirement age is 64 for females & 65 for males though this is due to be equalised to age 65 for both next year. To be entitled to the maximum basic state pension requires a contribution history of 44 years with an average annual re-adjusted salary of CHF 84,240 (The readjustment accounts for inflation). This would entitle you to CHF 2,340 per month for this tax year. The minimum guaranteed income for anyone who has a full contribution history of 44 years is CHF 1,170 per month. This applies to anyone who’s average annual income is not in excess of CHF 14,040.
Therefore, using an assumption that your final salary is your inflation adjusted average salary then the following returns can be expected:
|0Contribution term0||BlankFinal SalaryBlank||0Retirement Income0||BlankPercentBlank|
|44 years||<= CHF 14,040 p.a.||CHF 14,040 p.a.||100%+|
|44 years||CHF 85,000 p.a.||CHF 28,080 p.a.||33%|
|30 years||CHF 100,000 p.a.||CHF 19,145 p.a.||19%|
|22 years||CHF 150,000 p.a.||CHF 14,040 p.a.||9%|
So ultimately the higher one’s final salary and the fewer years one has contributed, the greater the deficit that can be expected upon retirement. Should your final salary be less than your average income over the 44 years then the deficit will be greater still.
Further to this, income earned during marriage is equally divided between both spouses for calculation purposes when either: both are claiming a state pension, there has been a divorce, or a widower is entitled to a state pension.
In the event that a couple are both claiming for retirement benefits then the maximum claimable state pension is capped at a rate equal to 150% of a single person’s maximum i.e. CHF 3,510 per month.
Technically it is possible to retire earlier and still claim the first pillar pension though it can be expensive to do so. Retiring up to one year early will reduce your pension entitlement by 6.8% whilst retiring between one & two years earlier will cut your pension entitlement by 13.6%. On the flip side you can choose to delay taking a pension for up to 5 years with each 3 month delay entitling you to a percentage increase (Up to a 31.5% increase under current terms).
Finally, the first pillar system is based on a Pay As You Go (PAYG) basis so that those paying tax are funding the retired with no provisions saved for the future.
* The system name is dependent upon whether it is in German, French or Italian i.e. the three main languages in Switzerland. The acronym stands for respectively Alters-, Hinterlassenen- und Invalidenversicherung (AHV), Assurance-Vieillesse et Surviveants (AVS), and Assicurazione Vecchiaia, Superstiti e invalidate.
Second Pillar (Deuxieme Pilier)
These are occupational pension plans that are set up by employers. The governing law dates back to a passing in 1982 with its implementation from 1985. At present there is no obligation to pay into the scheme if the employee is under 26. After this the minimum contributions are on a percentage basis according to one’s age, increasing up to 65 years old. This starts at circa 2% though the average contribution between employer and employee is usually around 12%.
There are 2 parts to the second pillar pension: 2a and 2b. The former is the mandatory minimum cover required to be provided by all employers with latter being any contributions exceeding this figure. The differentiation is important because it can effect how any benefits are taken. Should anyone leave Switzerland to live elsewhere then they may be able to access their pension. If their final destination is within the European Union then they can only withdraw their 2b contributions whilst those living elsewhere can access the full amount.
Pension contributions, as with the troisieme pillier, can be made tax free though any benefits are subject to applicable taxes upon withdrawal. Should you be migrating and wishing to access your pension then the tax rate payable will be subject to your situation. A lot of people are unaware of this and end up paying more tax than strictly necessary. Please feel free to contact us via email or our contact form to ensure that this doesn’t happen to you.
Third Pillar (Troisieme Pilier)
These are private pension schemes and are also split into two parts: 3a and 3b. The 3a scheme is the more tax efficient savings vehicle allowing one to offset any contributions against their Swiss tax when completing their tax return. There is also a distinction made between those with and without a second pillar pension. The former can save up to a maximum of CHF 6,768 this tax year whilst the latter group can save a maximum of the lower of CHF 33,840 or 20% of their annual income.
Once payments commence into a third pillar pension it is possible to continue contributions even when one is no longer working for up to 5 years (for example when one is on unemployment benefit / chomage).
There are 2 main forms of troisieme pilier pensions available on the market: bank products and investment plans. Although both offer guaranteed minimum returns the actual amount received varies widely depending upon the scheme chosen. Generally, bank products will offer less risk over shorter time frames whilst investment plans tend to offer higher returns over the long term.
Again, there are numerous options available and the correct version for yourself will depend upon your circumstances. Please feel free to contact us via email or our contact form for further information.