2 min read
If you have just moved to Switzerland, you may not necessarily be that familiar with the Swiss pension system.
In essence Switzerland runs a three-pillar pension structure, designed to ensure adequate pension income in retirement and based on a lifetime of contributions to each pillar.
Pillar 1 is the state pension system funded by social security contributions on your earned income, known as the AVS or AHV depending on where in Switzerland you live. Contributions are payable whilst employed and until reaching the statutory retirement age of 64 for women or 65 for men. The maximum pension benefit for an individual over a lifetime of contributions is CHF28’680 p/a.
Pillar 2 is the obligatory employer pension, funded jointly between the employer and employee with at least 50% of contributions coming from the employer. This is known as either the LPP or BVG, again depending on where in Switzerland you live. This is likely to provide you with the greatest part of your pension provision and offers attractive options like the ability to buy back additional contributions and receive tax relief (within limits), depending on your age and how long you have been working in Switzerland.
At retirement you have the option of either taking an income by way of an annuity or taking a lump sum. Both options are taxable on receipt, albeit at different rates.
You can access your pillar 2 fund on reaching statutory retirement age, or beforehand depending on the circumstances – e.g. retirement within 5 years of statutory retirement age, leaving the country definitively, becoming self-employed.
Whilst pillars 1 & 2 are mandatory, at least for employees, pillar 3 is optional but offers many benefits.
Pillar 3 is a supplementary pension which allows you to save annually up to CHF6’883 * (for employees) and CHF34’416 (for the self-employed) – 2021 tax year rates – into a recognised third pillar pension.
* NB – in Geneva canton this amount is higher.
As with additional second pillar contributions, income tax relief is given at your highest marginal rate.
There are a number of investment options
Each one has its positives and its drawbacks, depending on your situation, and the decision as to which would be most appropriate will depend on your current circumstances and future plans.
An insured solution can be suitable for those who wish to insure the future benefits in the event of ill health or premature death but may be less flexible over the shorter term. It can also be used as a tax efficient method of paying down your Swiss mortgage.
A bank option is flexible but can often offer very little by way of return on capital.
An investment solution will give greater investment choices.
However, neither the bank nor the investment solution will protect benefits in the event of ill health or death.
Benefits from Pillar 3 can be taken in Switzerland as early as 5 years before the statutory retirement age (64 / 65) or up to 5 years after. Tax is deductible upon withdrawal but at a reduced rate.
Finally, tax relief on the third pillar is only given for contributions in the current tax year – a sort of ‘Use it or Lose it’ system.
Whatever solution is right for your situation, the most important step you can take is to work out what you want retirement to look like – where, when and what lifestyle – and compare this with where you are currently with your pensions – whether Swiss or from a previous country of employment.
For more information, book an exploratory discovery call with a member of our team.
You have nothing to lose and potentially lots to gain.
One of our team will contact you and arrange a suitable time to discuss how our service works and how to get the ball rolling.