The Swiss Pension System

Entitlement to a pension occurs on the first day of the month after you reach the typical retirement age (65 for men, 64 for women). In terms of the AHV, you can bring your retirement forward by a year or two. Naturally, an early retirement results in a reduced pension.

Starting the AHV pension can be postponed by at least one and at most five years, in which case the pension increases by way of monthly interest. There are multiple variations that have different impacts on your income.

For married couples

The average income is calculated as follows: Income earned by both partners over a calendar year is split and one half of the total is allocated to each partner. This income split is carried out when both partners have started AHV retirement, when a widow/widower is entitled to a pension, or in case of divorce.

The sum of the individual pensions of a married couple cannot exceed 150% of the maximum pension amount. If this upper limit is exceeded, both individual pensions are cut short.

How the AHV pension is determined

The size of the AHV pension depends on multiple factors: the number of contribution years, the size of the income, and potential parenting and/or care credits.

All people that are employed or self-employed in Switzerland, or who live here, must pay AHV/IV/EO pension contributions. Employers and employees are required to contribute. Pension contributions are directly deducted from wages.

You receive a full pension (pension scale 44) if you have fulfilled the required pension contributions from the first of January after you have turned 20 until the end of the calendar year once you have reached retirement age.

By law, the maximum pension amount cannot be more than twice the minimum pension amount.

The BVG compulsory scheme applies to all workers already covered by the first pillar and who earn at least CHF 22,050 annually. Obligatory insurance cover begins once you start working, at the earliest after you reach 17 years of age. Initially, until you reach the age of 24, the contributions only cover risks of death and disability. From the age of 25, contributions will additionally be saved into your pension.

Employers and employees are required to contribute. Contributions are directly deducted from your wages.

How the pension is calculated

Pension payments in the second pillar are based on individual savings. These begin at 25, and end once you reach retirement age. Financing of the pension is covered by retirement assets saved over the years in the recipient's personal account. The existing capital is put through a calculation factor (conversion rate) and turned into an annual pension.

Depending on the pension fund and regulations, a part or the total pension payment may be received as a capital payment rather than in the form of a pension.

Private contributions were incorporated into the federal structure as a third pillar in 1972. It was introduced to close pension gaps and to develop assets. It is split into two pillars: 3a (restricted pension plan) and 3b (unrestricted pension plan).

Pillar 3a is currently characterised by its fiscally privileged status, which states that contributions made in accepted forms are tax-deductible. You do not have constant and free say over the credit balance of pillar 3a. There are fewer restrictions on pillar 3b, but in exchange, there are no direct tax benefits.

Why is private provision so important?

The first pillar (AHV) and the second pillar (pension plan) "only" cover around 60% of the final income. Depending on one's income, it can even be lower than that. The third pillar, which is promoted by the state and the cantons, aims to fill out income after retirement.