Switzerland's pension system enables Swiss people to remain financially confident and self-determined even in old age. If you have already taken a closer look at the 2nd pillar (occupational pension provision), you might already have encountered the “coordination offset.” Here we explain what the term is all about.
What is the coordination offset?
The “coordination offset” coordinates first- and second-pillar pensions.
The purpose of the 1st pillar (state old-age pension, AHV) is to provide a basic pension to cover the basic needs of the Swiss population. The 2nd pillar (occupational provisions, pension fund) is intended, together with the 1st pillar benefits, to ensure that retired people can still enjoy the standard of living to which they are accustomed. It makes a significant contribution to financial confidence and self-determination in old age.
And what does this have to do with the coordination offset?
The coordination offset ultimately ensures that the pension fund (2nd pillar) only levies contributions on those salary portions for the 1st pillar does not already pay benefits. In this way, the salary components covered by the AHV pension are not insured twice.
How high is the coordination offset in 2022?
The size of the coordination offset is determined by the Federal Council. The offset currently amounts to 7/8 of the maximum AHV pension (CHF 28 680), i.e. 25 095 francs in 2022.
What is the coordinated salary?
The “coordinated salary” is the applicable salary (gross annual salary) less the coordination offset.
An example: Ms Weber earns CHF 60 000 a year. Her coordinated salary thus corresponds to CHF 34 905 because: 25 095 francs of coordination offset are deducted from the applicable salary figure (60 000 francs). Thus the pension fund contributions – as well as the resulting retirement, children's, survivors' and disability pensions payable by the pension fund – are based on this salary.
How high are the minimum and maximum coordinated salary figures?
The minimum coordinated salary is CHF 3585 and the maximum coordinated salary is CHF 60 945.
What should be taken into account by people who work part-time?
The following is of particular importance to employees working part-time: The minimum annual salary for the 2nd pillar is CHF 21 510 (entry threshold as at 2022). This means that if you earn less than CHF 21 510, you will not need to make any pension fund contributions whatsoever. In old age, you will only receive the minimum AHV pension of CHF 1195 – a sum that is below the minimum subsistence level.
Our advice: In order to reach the minimum income figure for pension fund purposes, it is advisable to work at least 60% of full time.
Some pension funds reduce the coordination offset for part-time employees. This can be done in proportion to the level of employment, for example, resulting in a higher insured salary, higher pension fund contributions and thus higher insured benefits from the 2nd pillar.
Would you like to work part-time?
With Swiss Life's part-time work calculator, you can now find out quickly and easily how reduced working hours will affect your budget and your pension provision.
What you should also bear in mind is that the 1st and 2nd pillars only cover around 60-75% of the income you were last earning. Depending on your income, the figure might even be less. In order to close gaps in pension provisions, we strongly recommend making private provisions through the third pillar.
Would you like to insure yourself via the 3rd pillar?
Arrange a consultation now. Our experts will be happy to provide you in person, with no obligation on your part. Instead of advising you at our General Agency or at your home, we would be happy to advise you via video.
Make preparations now so that you can maintain your preferred standard of living and enjoy financial security in the future.
image source: Unsplash, Greg Raines
