The Swiss pension system is one of the most advanced in the world. It is based on a three-pillar system, which is an essential and unique element of the Swiss social security system.
Solidarity is a key element for benefits and funding, it is based on the principle that the working population finances pensioners' pensions, and that "young people" will themselves benefit from this solidarity when they reach retirement age.
If you are a cross-border worker in Switzerland, you are affiliated to the Swiss pension system. This guide will help you to better understand the Swiss pension system in order to optimize your tax situation in the context of your pension plan.
The Swiss pension system is based on these three pillars:
The first pillar is mandatory and aims to guarantee the minimum subsistence level for citizens, namely the old-age and survivors' insurance, or OASI. Thanks to a generation contract, the working population finances the retired population through a distribution process. Men retire at age 65 and women at age 64.
Contributions to the OASI are paid mandatorily, half by the employer and half by the employee (the deduction is made directly from the salary). The first pillar also includes disability insurance (DI), which aims to compensate the financial consequences of a decrease in the ability to work due to health reasons.
The first pillar is constituted of:
As a cross-border worker, your pension depends on the years of contributions taken into account and the determining average annual income. In addition, the 1st pillar, covering only the subsistence minimum, the minimum pension being 1175.- per month, and 2350.- maximum per month. As the money from the 1st pillar is insufficient to maintain the desired standard of living, the mandatory occupational provision scheme has been created.
All working people save their own retirement assets through a capitalisation process. Occupational provision enables insured persons to maintain their previous standard of living to a large extent. It is mandatory for a part of the working population. The second pillar includes the occupational pension fund, which covers the risk of disability and death due to illness or accident.
All employees who are already insured under the 1st pillar and who earn at least 21,330 francs per year are insured under the 2nd pillar (status: 2019). The law provides for a mandatory minimum rate that both the employer and employee also pay. This amount is deducted directly from the employee's salary. The minimum contribution rate is set by the Confederation. It depends on age and gender:
Before the age of 24, contributions only cover the risks of death and disability. From the age of 24 until retirement age, the insured person also contributes to the retirement pension.
The occupational provision plan is complementary to the AVS, so that the whole (OP + OASI) covers about 60% of the last salary. However, in order to have enough money in retirement to devote to your interests, you can use the optional pension plan.
The third pillar is the private provisions pillar, which is optional and is divided into two branches, pillar 3a and 3b. This pillar complements the benefits of the 1st and 2nd pillars and includes various forms of capital accumulation such as savings accounts, securities, life insurance, or home ownership. If you want to continue to practice your hobbies and travel in retirement, you need to take care of your retirement planning as soon as possible, the earlier you start, the better.
It is to the bank or your insurance company that you should contact to subscribe a 3rd pillar. Please note that depending on your situation (border or resident in Switzerland), it may not be possible to subscribe to a 3rd pillar. Ask your bank or insurance company for more information. (For cross-border commuters, the 3rd pillar looks like a PERP (Plan d'Epargne Retraite Populaire).
3a Pillar: This pillar is financed by you and the sums paid into pillar 3a are eligible for tax deductions. Pillar 3a operates like a savings bank but can also deduct from its income the amount deposited throughout the year, with a limit (just over 6700 Swiss francs). The 3rd pillar reduces your taxable income, so the amount you will have to pay to the tax authorities.
3b Pillar: It can be used for life insurance, savings, shares, or home ownership. Only Swiss residents can subscribe to this pillar through insurance.
These three pillars aim to financially protect each person and their loved ones at the end of their working lives, in the event of disability or death.
More information on the pillars for border residents here.