To put it simply, the three-pillar system is one of Switzerland’s fundamental values. It guarantees stability and social security at a collective level. Individually it enables people in Switzerland to enjoy their old age with financial confidence and self-determination.
This cannot be taken for granted, since pension systems are subject to demographic and social change as well as evolving values. So the demands placed on the pension system are significant. The following three surprising facts make this clear:
- To date, each generation has been living seven years longer than the preceding one
- 46% of Swiss would like to put aside a nest egg for their old age
- One out of three Swiss today has a gap in coverage
The three-pillar system at a glance
Despite all the changes, Switzerland continues to enjoy a sound foundation by international comparison. This is thanks to the three pillars of the Swiss pension system, each of which has its specific purpose and scope. Their smooth interaction ensures that Swiss people continue to enjoy their accustomed standard of living in self-determination even in old age.
The first pillar: state benefits
Financing for the first pillar is based on the principle of solidarity: those in employment (including cross-border commuters) and employers pay monthly contributions, which finance the pensions of those who are currently retired. At present, AHV age is 64 for women and 65 for men. The AHV pension must be applied for. The expected amount of one’s pension can be determined with an application for calculation of anticipated pension by the cantonal social security administration office.
With the first pillar, Switzerland meets its main obligation under the welfare state. Recipients of first pillar benefits thus have a minimum standard of living in old age, in case of disability and following a death. No more and no less.
Object |
Mandatory benefits coverage |
Basis |
AHV (Federal old-age and surviving dependants' insurance) IV (disability insurance) and supplementary benefits EO (Ordinance on indemnity for loss of earnings) |
| Objective | Securing the minimum standard of living |
Financing |
Pay as you go basis (gainfully employed persons pay for pensioners) |
The second pillar: occupational provisions
Occupational provisions are the second pillar of the Swiss pension system. In practical terms this means occupational pension funds, whose benefits, together with the AHV from the first pillar, 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, sent by the pension fund at the beginning of each year, provides information on one’s retirement pension. The amount mentioned therein is to be understood as “provisional”, since it depends on such factors as future salary increases, level of employment, conversion rate etc.
The second pillar is a further mainstay of the Swiss three-pillar system and contributes significantly to financial confidence and self-determination in old age.
| Object | Obligatory occupational provisions |
Basis |
BVG (Federal Law on Occupational Retirement, Survivors' and Disability Pension Plans) UVG (Federal Law on Accident Insurance) |
Objective |
Continuation of your and your relatives’ accustomed standard of living – in the event of old age, disability or death – in combination with the first pillar. |
Financing |
Fully-funded system (savings) |
The third pillar: private benefits
Private pension provision was enshrined in the Federal Constitution as the third pillar in 1972. It serves 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 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.
Why are private provisions so important? The first pillar (AHV) and the second pillar (pension fund) cover “only” about 60 to 75% of the last salary. Depending on your income, it may even be less than that.
The third pillar, which is supported by the Federation and cantons through tax breaks, is intended to supplement one’s income after retirement.
Object |
Voluntary, private provisions |
Basis |
Federal Constitution |
| Objective | Fulfilment of private ambitions Closing of pension shortfall not covered by the first and second pillars Tax optimisation |
Financing |
Fully-funded system (savings) |
Your questions – and the solutions
It’s never too early to start planning your retirement provisions. The sooner you begin, the more time you have to put the requisite funds aside. Age, professional position and personal circumstances are the deciding factors. Start your planning with an analysis of your financial situation. The following questions will help make your assessment:
- What sort of AHV pension can I expect? Are any contribution years missing?
- What can I expect to receive from the pension fund?
- Is it advisable, particularly after a divorce or big salary rise, to top up my pension by making a purchase?
- How should I design my third pillar?
- How can I save the most on tax?
- Do I need risk insurance as well?
The result of this detailed analysis will make clear what sort of provisions are needed.
Designing retirement
Set your course now to continue enjoying your accustomed standard of living in future as well, and to lead a life of financial security.
Make an appointment for a consultation
Retirement provision is a complex and, above all, individual subject. Our insurance and financial experts will be happy to analyse your personal situation and suggest solutions. We would also be happy to advise you by video instead of in the General Agency or at your home.
