Expats arriving in Switzerland for the first time often feel at a loss and have any number of questions about insurance, financing their own home and provisions. Here you will find the answers you need to shape your future in Switzerland in self-determination.
In 2018, just over 170 000 people immigrated to Switzerland. Not all newcomers plan on staying indefinitely. Many of them are expatriates (expats for short), specialists and managers sent by international companies to spend a few years in Switzerland. Once their work is done, they move on to a new country or return to their country of origin. Accordingly, more than 126 000 people left Switzerland in 2018.
Expats face the challenge of finding their feet in Switzerland within a very short period of time. No easy task, as can be seen from the questions posed in this interview by some expats from the Zug region.
Especially frequent were queries regarding insurance, retirement provisions and purchasing a home. You will find the answers in what follows.
What insurance is needed?
New arrivals in Switzerland typically take care of the essentials first, such as registering with their municipality, opening a bank account and looking for an apartment. Then they tackle insurance. But which insurance is important, and which is indeed mandatory?
- Mandatory insurance
Health insurance is mandatory in Switzerland and must be concluded no later than three months after arrival. Also mandatory is liability insurance for owners of motor vehicles and buildings insurance for homeowners.
- Key property insurance
Not mandatory but recommended is the conclusion of private liability insurance covering claims arising from damage to third parties. With contents insurance you can also insure your assets, e.g. against theft or destruction by fire and water.
- Protection in the event of accident, illness and unemployment
If they work more than eight hours per week, gainfully employed persons are insured by their employer against unemployment and accident. Non-gainfully employed spouses or children should have accident cover from their health insurer. Younger newcomers are advised to purchase disability income insurance to prevent insurance gaps in the event of illness.
How do the three pillars work?
The three pillars of the Swiss provisions system are coordinated to ensure that inhabitants of Switzerland are able to maintain their accustomed standard of living with self-determination in old age.
- First pillar (AHV)
In the case of state benefits, those in employment (including cross-border commuters) and employers pay monthly contributions, which finance the pensions of those who are currently retired. Later on, when you reach retirement age, you will benefit from these payments. At present, the AHV age is 64 for women and 65 for men.
- Occupational provisions (BVG)
In practical terms, this means occupational pension funds, whose benefits, together with the AHV, are intended to cover up to 75% of the last salary. In contrast to the first pillar, occupational pensions are a fully funded system, which means individuals save and pay directly for their own benefits. The pension certificate provides information concerning the pension.
- Private provisions
Private provisions serve to close gaps in coverage and to accumulate assets. A distinction is made between pillar 3a (tax-qualified provisions) and pillar 3b (non-tax-qualified provisions). Pillar 3a is capped at an annual maximum of CHF 6826 (as at 2019) and subject to certain restrictions. On the other hand, you can deduct it from your annual taxes. Pillar 3b is subject to fewer restrictions, but has no direct tax benefits.
What happens after retirement? Will we still be able to afford our standard of living?
If you want to look forward to retirement without worrying, you should begin planning for it early and closing any coverage gaps as soon as you can. As a rule, although the first and second pillars ensure income of around 60% of your last salary, you will typically need around 80%. Especially expats, whose late arrival often means they have not paid into the pension system as long as Swiss citizens, can profit from paying into private provisions (pillars 3a and 3b) as well as perhaps making a pension fund purchase.
Can we buy a house with a B permit? And how does financing work?
If you come from an EU or EFTA country or reside in Switzerland, you enjoy the same rights as a Swiss when purchasing real estate, and thus do not require a permit. Purchasing a vacation or second apartment is another matter: authorisation is required for that. Citizens of third countries can purchase residential property if they possess at least a B permit and occupy the apartment or house themselves.
Financing the purchase of a home requires at least 20% equity, since only 80% of the purchase price can be financed by mortgage. Such equity can for example come in the form of bank assets, the proceeds from the sale of securities, assets from the second or third pillar or prepayment of inheritance. You should also check the viability of a given purchase, since many people underestimate the ongoing costs (interest costs, amortisation and maintenance and ancillary costs). A rule of thumb: the costs may not exceed a third of one’s annual gross income.
What happens to pension assets when we leave the country?
In principle, when you return to your country of origin you have a right to contributions to Swiss Federal Social Security (AHV) and to occupational provisions (BVG). You must, however, apply for a payout five years at the latest following retirement. The registration form for payout of an AHV pension can be downloaded at www.ahv-iv.ch. Your employer will be happy to answer any questions you may have regarding pension funds. Contractually agreed conditions govern what happens to your third pillar upon your return to your country of origin. As a rule, however, third-pillar assets are paid out directly.
Understanding future provisions
There are a number of pension options, which can be individually tailored to your needs. The earlier you address the issue of occupational benefits, the greater your financial flexibility for a self-determined life.
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