Swiss pensions explained

To be reviewed

Introduction

This post is to summarize key points relating to Swiss pensions for the employed expats. Topics covered:

  • basic concepts, including the “three pillars” of the Swiss pension system
  • the second pillar, ie the employers pension scheme
  • obligatory and non obligatory contributions
  • using your pension before retirement
  • transferring your UK pension(s) to your second pillar
  • leaving Switzerland, taking your pension with you

Self employed have somewhat different rules that aren’t within the scope of this post. Retirement in Switzerland is also not covered.

Bespoke retirement: Switzerland’s four retirement models

Basic Concepts

The Swiss pension system has three pillars (D: säule, F: piliers).

Pillar 1, (D: AHV, F: AVS) is the compulsory state pension and the contributions are deducted by your employer from your pay. It can provide an individual pension of (currently) upto c26kchf per annum after c.40 years contributions.

Pillar 2, (D: BVG, F: LPP ) is the employers pension scheme and is compulsory for individuals over 24 and earning more than c20kchf. There is a compulsory element (D: obligatorisch, F: obligatoire) covering contribution on incomes between c20kchf and c80kchf. Your employer may very well provide additional cover over and above the compulsory element (eg larger share of costs, higher salary insured etc).

Pillar 3, (D: dritte Säule, F: troisieme pilier) are voluntary additional pensions savings of slightly over c6kchf per annum that are tax deductible and invested tax free.

Pillars 1 and 2 also include certain insurance elements such as life assurance and widow and orphan pensions. A full lifetime of contributions to Pillars 1 and 2 might just give you a 60% pension on salaries upto about 70,000chf per year. Your employer should essentially “take care” of making sure you are a paid up member of both Pillars 1 and 2.

Pillar 3 is your responsibility to organise. There are a variety of products you can chose to invest this money in from straight savings accounts via with-profits life assurance policies to 50% equity based portfolios. 3rd Pillar Pension Fund

Second Pillar, Employers Pension Schemes

Employers are obliged to make a second pillar available that provides at least the minimum legal cover (ie cost to be shared 50%, minimum % of salary depending on age bands, a minimum annual return on investment). Defined benefit/final salary schemes are possible but very rare, virtually all are defined contribution schemes with a capital protection/minimum return element.

Beyond this legal minimum the employer can chose to offer all or selected categories of employee (eg management, or people over 150kchf income, but not explicitly “Mr/s X, Y and Z”) additional benefits. “Market” benefits for managers are typically quite significantly better than the statutory minimum, particularly as regards salary limits and assurances (eg death in service).

Most small or medium companies largely outsource the management, administration and quite a lot of the risk of their pension scheme to one of the large institutional providers such as Swisscanto (owned by the cantonal banks). Although this is reassuring as to corporate governance and solvency, it does not mean that all the benefits are alike as each company can set its own benefits levels.

Larger companies will often administer their own scheme, and are paying contributions into the scheme which then invests assets so it can pay benefits, including the annual guaranteed return. Not all funds have the same solvency profile, and you should check or seek advice before paying additional voluntary monies (eg extra contributions or carry over from previous companies) into a poorly funded scheme. This goes particularly these days.

See Pension Second Pillar contributions

Obligatory and Non-Obligatory and Additional Contributions

Many expats arrive in Switerland after age 24 and many earn significantly more than the 80kchf obligatory limit for the second pillar. Furthermore most employers have a salary ceiling far above the 80k obligatory threshold. For once, this means being a foreigner is Switzerland has a perk since you are allowed to make tax deductible contributions as if you had been earning your current salary since you were 24. A large proportion of your contributions will be over-obligatory (D: Ueber-obligatorisch, F: sur-obligatoire) and you can lay your hands on them at very low tax rates when you leave Switzerland. Additionally the Swiss system allows you to use your pension pot in a number of ways well before you retire so the money isn’t locked away completely.

If your employers second pillar is healthy (see Second Pillar, Employers Pension Schemes) and you have the spare cash you should give serious thought to this tax planning opportunity.

Accessing your Swiss Pension before Retirement - On leaving Switzerland

If you leave Switzerland permanently for a non EU country you can be paid your whole pension pot minus a relatively modest withholding tax which varies depending on your canton of residence but is almost always much lower than the tax you would have paid on the income had it not been paid into your pension pot.

If you leave Switzerland for an EU country then the same goes for the over-obligatory contributions ie you can have them paid out. However, the obligatory contributions must stay in a vested benefits account until you reach retirement age. In theory it is possible to have the amount transferred to another EU pension, however the law is not very well drafted (specifically the Pensions law only allows transfers to Swiss and Liechenstein funds, but the law that enacts the bilateral agreement with the EU allows free movement!) and as at the time of writing I am not aware that anyone has managed to do this in practise.

If you plan to leave your pension pot untouched for a while once you leave Switzerland and you live in a cheap tax commune/canton you should consider carefully where to place it. Once you leave Switzerland you will be taxed based on where the vested benefit account is located, in the case of UBS and the Cantonal Banks, this is the not so cheap Basel. Again read thread Freizuegigkeitskonto [vested benefit account]

Sorry, that link doesn’t work.

I found this page: Bespoke retirement: Switzerland’s four retirement models

However, as the CS integration with UBS should be completed this year, that link will probably also become obsolete.

I do appreciate the work you’re doing.

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Thanks Capacitrix, deleted the incorrect link and will integrate yours.

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