The Swiss pension system simply explained
Swiss retirement planning is based on a three-pillar system providing state, occupational, and private pensions as provision for old age. The state pension scheme together with occupational retirement planning as provided by employers are grouped together in the first two pillars. The third pillar is a purely private form of pension provision.
Pillar 1 comprises old-age and survivors' insurance (AHV), disability insurance (IV), and supplementary benefits. As a compulsory state pension scheme, its purpose is to safeguard a minimum level of subsistence in old age and in the event of disability. Pillar 1 insurance is compulsory and extends to all those who live or work in Switzerland.
Pillar 2 is formed on the basis of the Federal Act on Occupational Retirement, Survivors' and Disability Plans (BVG) in conjunction with the Federal Law on Accident Insurance (UVG). Its aim is to safeguard the funding of living expenses in old age. Pillar 2 insurance is compulsory for all employees with an income* of more than CHF 21,150 p.a. (*salary subject to AHV contributions).
Pillar 3 serves to make up any shortfalls in cover that may arise despite optimum use of Pillars 2 and 3. As a voluntary, supplementary form of insurance, its aim is to allow retirees to maintain their accustomed standard of living, as the benefits payable from Pillars 1 and 2 are not normally sufficient to allow this. The Pillar 3 provision is divided into restricted (3a) and flexible pension plans (3b).
Why is a private pension so important today?
An adequate private pension is the ideal – and indeed essential – way to avoid shortfalls in your pension provision. While rising life expectancy may provide us with new and exciting lifestyle opportunities as we grow older, the ageing population is also stretching state and occupational pension coffers to their limits. This means that we all need to accept more personal responsibility for our pensions so that we can all enjoy the full benefits of retirement.