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If you want to live peacefully when retired, you should take care of your pension insurance throughout working life. In Switzerland, the pension scheme consists of three pillars (Säulen).
The First Pillar - AHV. State Security Based on Solidarity
The first pillar of the Swiss pension scheme is based on solidarity. The pensions currently paid are financed by the professionally active generation who believes that the next generation will work for their pensions in the future. This kind of solidarity is sometimes called an inter-generational agreement (Generationsvertrag). However, this is not the only kind of solidarity in the first pillar. The richer policyholders co-finance the pensions of the poorer ones - they pay much more than they will receive upon reaching retirement age. This "surplus" is used to finance the pensions of financially weaker citizens.
Solidarity in the first pillar also occurs, for example, between spouses, as well as between people who take care of children or relatives and those who have no one under their care.
The AHV (Old Age and Survivor's Insurance) benefits are generally only intended to secure existence after retirement. Therefore, in the first pillar, high benefits should not be expected. A single person can receive a maximum of CHF 2,390, a married couple – no more than CHF 3,585. These are maximum values and, of course, not everyone is entitled to receive them. The payment of pension is capped, but contributions are not. The amount of contributions depends on income and is a part of it. Fortunately, there is also a minimum pension in the first pillar – CHF 1,195 for a person living alone.
Please keep in mind that your AHV pension will not be paid to you automatically when you reach your retirement age. To receive it, you need to apply to the compensation fund (Ausgleichskasse) at least two or three months before you retire. The fund can also tell you how much your monthly pension will be based on current data. We can also check your entire contributions history in the first pillar.
The First Pillar Benefits Are Usually Not Enough
The AHV benefits are simply meant to secure existence – but many of us expect more from the retired life. Therefore, pension benefits in Switzerland are not limited to only one state pillar. The benefits in the second pillar are defined in the Act of 1 January 1985 on Occupational Retirement, Survivors' and Disability Pension Plans.
The goal is to maintain an appropriate living standard also after the end of working life. Therefore, the sum of benefits from the first and second pillar should amount to approximately 60% of the salary received right before retirement.
To receive benefits in the second pillar, you must first be insured in the first pillar (AHV). What is more, the insured person must be at least 17 years old and not yet reach the statutory retirement age. The death and invalidity insurance starts to be on 1 January after your 17th birthday. The collection of contributions starts on 1 January after the 24th birthday.
The next important condition is the amount of annual income – currently (2023) it must be at least CHF 22,050.
The rules of solidarity no longer apply in the occupational pension insurance – all money saved will be paid to you after reaching the retirement age. You can decide whether you want to receive the entire amount at once, or if you prefer get monthly payments in a fixed amount. A mixed solution is also possible – you can receive some money immediately, and the rest is paid in the form of monthly payments. The monthly retirement benefit amounts to 6.8% of the saved (or remaining) sum, and it is specified in the act.
The way you want to receive your money should be declared in advance – if in doubt about the time limits, it is worth asking the fund. It is also worth taking time to think about it, because once the decision is made, there is no going back.
It is possible to withdraw money saved in the fund earlier - in order to do so, at least one of the following conditions must be met:
- Starting your own business,
- Taking early retirement,
- Buying a property to live in,
- immigrate to a country outside the EU/EFTA; in the event of emigration to an EU/EFTA country, you will receive only extra-compulsory benefits from the pension fund
Benefits in the first two pillars can provide a good security after retirement, but many Swiss expect something more. To make this possible, the legislator allowed voluntary, private pension provision under the third pillar. It is a voluntary form of saving, but it is supported by the state through tax benefits. This is a good form of protection not only for yourself, but also for your family and business partners.
There are two types of voluntary pension insurance: taxable (pillar 3a) and non-taxable (pillar 3b). What is the difference?
The retirement pension account in the 3a pillar can be opened by anyone over 18 years old who is receiving income subject to the AHV. The state provides related tax benefits, which, however, only apply up to a certain amount of payment. Another advantage of the retirement account is the possibility of using funds to finance your property or mortgage amortization.
The 3b pillar is less restrictive than the 3a pillar – you can save without restrictions, and you do not have to make money subject to AHV. Therefore, anyone who lives in Switzerland can save in the 3b pillar. You can also choose when the money will be paid and who receives it in the event of our death.
The amount of contributions vary depending on your life situation. There are insurance products that provide monthly payments from as little as CHF 100. In the 3a pillar, you should also pay attention to the maximum values.
As an employer, you can pay a maximum of CHF 7,056 per year, which is CHF 588 per month. The limit for the self-employed is higher – CHF 35,280 per year or CHF 2,940 per month.
The 3b pillar does not provide for a maximum amount of contributions. It is also possible to purchase an appropriate saving plan for children with monthly payments starting from CHF 50. Additional deposits from CHF 500 are also allowed. The minimum duration of such a saving plan is 10 years.
This insurance allows you to protect your loved ones in the event of your death. It guarantees quick payment of the guaranteed sum to your relatives or business partners.
This kind of insurance protects our financial independence when, for some reason, you are no longer able to practice your profession. If such a situation occurs, you receive a pension in the amount specified in the contract.
This plan ensures defined minimum benefits. With a bit of luck, however, you can count on additional money.
With this plan, you can be 100% sure what amount of benefit you will receive – no less and no more than the sum agreed in the contract.
There is no guaranteed benefit in this plan – everything depends on the development of the market. It is a relatively high-risk plan, but it also allows you to achieve excellent rates of return.
This is a supplementary benefit to the first and second pillar. You save money during your working life in order to receive benefits afterwards, along with benefits from the AHV and the pension fund.
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