3-pillar system: the Swiss pension system

The Swiss pension system is based on three “pillars”. It is designed to provide a financial safety net for retirement, disability and death. The three pillars are as follows:

• State pension: The first pillar of the Swiss pension system is the old age and survivors’ insurance (OASI – or AHV/AVS/AVS in German, French and Italian respectively). The OASI is intended to cover basic costs of living in old age and is compulsory.

• Occupational pension: The second pillar is the occupational pensions (abbreviated to BVG/LLP/LLP in German, French and Italian respectively). It is usually compulsory for people in employment. The occupational pension supplements the OASI and is intended to enable an adequate standard of living.

• Private pension: The third pillar is voluntary and is intended to allow you to maintain your usual standard of living in retirement. If you take out a pillar 3 pension in the form of a life insurance policy, you can also be insured against risks such as death or incapacity to work.

Pillar 1: state pension

The OASI is intended to secure your basic costs of living in old age and is compulsory. If your pension income is not enough to cover these basic costs, you can claim supplementary benefits.

The financing of the OASI system is based on the principle of solidarity between the generations. With the pay-as-you-go system, the working population finances the pensions of the retired population. In addition, higher earners support less wealthy people. That is because those who earn more, pay higher contributions than those with lower wages.

The survivors’ insurance is intended to cushion financial difficulties in the event a partner’s or parent’s death.

Pillar 2: occupational pension

The occupational old-age, survivors’ and invalidity pension (summarised as occupational pension) and the pension under the Accident Insurance Act (AIA) make up the second pillar. The occupational pension is usually compulsory for people in employment. There are exceptions, for example, for self-employed people or people with low wages.

Together with benefits from the first pillar, the benefits from the occupational pension scheme are intended to enable you to continue to maintain your customary lifestyle when drawing a pension. Unlike with the OASI, you only save for yourself with the occupational pension. The pension fund invests the capital paid in.

Pillar 3: private pension

The third pillar consists of the restricted pension plan (pillar 3a) and the unrestricted pension plan (pillar 3b). The third pillar is optional. By saving privately in the third pillar, you can:

• Close any pension gaps

• Save on tax with pillar 3a

• Finance the purchase of a home

Unlike pillar 3a, pillar 3b does not provide tax benefits. On the other hand, it is more flexible and you can withdraw money without having to meet certain conditions. In contrast to pillar 3a, there is no maximum amount for deposits.