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For Your Standard of Living: The Second and Third Pillars of Swiss Social Security
At a Glance:
- Employees working in Switzerland (including expats) usually have to sign up for an occupational pension plan and mandatory accident insurance.
- The occupational pension scheme is supposed to help them maintain a certain standard of living as retirees. It is highly recommended for self-employed residents, too.
- The Swiss government also supports selected private pension plans with tax incentives. These retirement provisions form the so-called "third pillar" of social security.
The second pillar of the Swiss social security system is the responsibility of your employer and, unlike the mandatory first pillar, it may or may not be compulsory, depending on your employment status.
The idea behind this insurance scheme is to help people in Switzerland maintain a certain standard of living in the event of retirement or an accident. The second pillar consists of an occupational pension scheme (BVG) and accident insurance (UVG), but for the purpose of this article, we will focus primarily on the BVG scheme.
The Ins-and-Outs of Employers’ Responsibilities
Any employee who is insured under the AHV/IV insurance fund and earns over 21,150 CHF per year is automatically covered by — and therefore required to pay into — a second pillar insurance fund. Swiss residents must start to contribute to the fund as soon as they start working. Their employer is required to pay at least half of the contributions towards the BVG/UVG plan, as long as the employee fulfills the requirements to qualify for compulsory coverage.
For younger employees between the ages of 17 and 24, this type of insurance only covers survivors’ and disability benefits. Then, as of 1 January after their 24th birthday, the BVG scheme also includes their future retirement benefits. After they retire, the total savings that they have accumulated through the BVG scheme will be paid to them in the form of a pension.
The only residents in Switzerland who do not have to contribute to the second pillar of social security are the self-employed, people with a fixed-term employment contract that lasts less than three months, and those who have an officially diagnosed disability with a degree of at least 70%. However, all of these groups of people can still choose to financially contribute to the BVG/UVG insurance plan, if they would like to.
Contributions vs. Compensation: Facts and Figures
Contributions towards the BVG/UVG scheme vary depending on your age and the company you work for, but they normally range from 7% to 18% of your gross salary. However, there is a maximum cutoff point.
Employees whose annual income is above a certain amount per year will only pay contributions on the income below the maximum threshold. Any income above this amount will not be taken into account when your contributions are calculated. For more information on this topic, please speak to your employer or insurance provider.
Again, the scheme works on a pay as you earn (PAYE) system, with your employer contributing at least the same amount as you. This means that you and your employer could both pay half of the contributions each, or your employer might decide to pay 70% and ask you to fund the other 30%, and so on. So, if a 55-year-old employee is required to contribute 18% of his or her gross salary, for example, at least half of this amount will be contributed by the employer.
Old-Age Pension Entitlement
When it comes to retirement benefits from the second pillar fund, employees tend to receive roughly 6.8% of their total savings per year, plus an annual interest rate. Expats covered by both the first and second pillar of the Swiss social security system should be able to draw a pension that’s equal to at least 60% of their former salary when they retire.
As with the AHV scheme, employees who take early retirement — between the ages of 58 and 64 — will receive a reduced pension. However, should you choose to retire later than the standard retirement age in Switzerland, you’ll be given the choice to either continue to increase your savings, or to retrieve 25% of your savings on demand. If you decide to opt for a payout, just speak to your employer and they can advise you on what steps to take next.
Disability Pension Entitlement
The second pillar scheme also entitles the insured person to an extra disability pension, should he or she find themselves unable to work due to disability before the standard retirement age. The total disability pension is based on the assets that they could have saved for their old age.
This amount is calculated by adding the contributions they have made up until the point that the disability pension becomes necessary and the sum of the contributions they would have made, had they not had to retire early for health reasons. Then, depending on the level of your disability, you will be entitled to a certain percentage of this total sum.
Much like with the IV pension, those people who are classed as 40% invalid will receive a quarter of the full pension. If your degree of invalidity is 50%, you will receive half the pension, and those with a disability level of 60% receive three-quarters of the final sum. Anyone with a degree of invalidity of 70% or more is entitled to the full amount.
Survivor’s Benefit Entitlement
Under the BVG scheme, insured expats can also receive a survivor’s benefit if their significant other passes away. This is only valid if the couple is married or in a civil partnership. Depending on the situation, the spouse will either receive a pension of up to 60% of the deceased’s retirement pension, or a one-off payment.
Accident insurance (UVG) premiums can differ considerably depending on the industry you work in. One thing to note, however, is that the UVG scheme provided through your employer covers you for personal accidents outside of the workplace, as well as work accidents. The contributions towards the part of your UVG policy that covers work accidents will be paid by your employer, while you need to pay the contributions to a personal accident insurance plan.
We do our best to keep this article up to date. However, we cannot guarantee that the information provided is always current or complete.