Retirement planning in Switzerland is built on a three-pillar structure that includes public, occupational, and private pensions. In the first two pillars, the state pension program and employer-provided occupational retirement planning are linked together. The third pillar is a completely private pension plan.
Pillar 1: State pension to ensure a minimal standard of living in old age
Old-age and survivors’ insurance (AHV), disability insurance (IV), and additional benefits make up Pillar 1. Its objective as a mandatory state pension program is to ensure a minimum standard of living in old age and in the case of disability. Pillar 1 insurance is mandatory for everyone who lives or works in Switzerland.
Pillar 2: Supplementing the state pension with work-related retirement planning
The Federal Act on Occupational Retirement, Survivors’, and Disability Plans (BVG) is combined with the Federal Law on Accident Insurance to form Pillar 2. (UVG). Its objective is to ensure the paying of living expenditures in old age. All employees with an annual income* of more than CHF 21,150 (*salary subject to AHV contributions) must have pillar 2 insurance.
Pillar 3: Private pension plans to make up for any protection gaps. Pillar 3 fills in any gaps in coverage that may occur despite the best efforts of Pillars 2 and 3. Its purpose as a voluntary, supplemental kind of insurance is to allow retirees to retain their current way of living, as the benefits provided by Pillars 1 and 2 are typically insufficient to do so. Pillar 3 is separated into two types of pension plans: restricted (3a) and flexible (3b).
Why is it so vital to have a private pension today?
A sufficient private pension is the best – and indeed necessary – approach to avoid pension shortages. While increasing life expectancy may present us with new and interesting lifestyle options as we become older, the aging population is also straining state and workplace pension funds. This means that everyone of us must take greater personal responsibility for our pensions in order to reap the full benefits of retirement.