The Swiss three-pillar system

If you are a cross-border worker in Switzerland, you are subject to the Swiss retirement system. This guide will help you get a better understanding of this system and its impact on your retirement provisions.

The Swiss retirement system is built on three pillars:

1. The first pillar is a state protection, each person older that 20 years old must contribute to it. Please note that the control of this contribution is not systematic, some persons may start contributing later. As a result, they may not receive an integral pension when reaching the retirement age.
2. The second pillar is a professional protection, with each person having a lucrative activity being obliged to contribute to it.
3. The third pillar is an individual and optional provision. It's not mandatory to have a third pillar, it is up to each person to decide whether to start one or not. The 3rd pillar provides extra coverage and some fiscal benefits.

The 1st pillar: Guarantee the minimum subsistence level

Deducted directly from the salary and paid by the employer and the employee in equal parts, the first pillar is compulsory for all those who live and/or work in Switzerland.

This contribution is made up of the OASI - Old Age and Survivor Insurance which covers death as well as retirement, and the DI - Disability Insurance which, as its name indicates, covers partial or total disability.

The objective of the first pillar is to guarantee the minimum subsistence level of those who have contributed when they reach retirement age. A person who has contributed until retirement age, i.e. for 43 years for women and 44 years for men since the age of 20, is entitled to a full pension.

However, there is no fixed amount and this pension varies according to the average income the person has received during his activity.

As a cross-border worker, your pension depends on the years of contributions taken into account and the average relevant annual income. The latter can be a minimum of CHF 1,175 and a maximum of CHF 2,390 per month.

Please note that there is a ceiling for married couples who cannot receive more than CHF 3'585. Indeed, a retired couple can receive a maximum of 150% of a pension.

Please note that in some cases, this pension is unfortunately not sufficient to cover the minimum subsistence of an individual or a couple. In this case, if the AVS pension does not cover the minimum subsistence level, the person can apply to receive the Supplementary Benefits (EL/PC). This pension alone remains insufficient at present to maintain a decent standard of living. This is why the mandatory occupational pension plan - the 2nd pillar - was created to cover this shortfall.

The 2nd pillar: Maintaining the previous standard of living

Deducted directly from the employee's salary, the second pillar was introduced to enable each individual to remain as close as possible to his or her previous standard of living.

Any person with a paid activity is obligatorily affiliated to it. This contribution includes OP and UV benefits.

The OP benefit covers retirement, disability and death. In theory, it covers accidents and illnesses, but in practice in 99% of cases it will only cover illness. The UV benefit, on the other hand, covers disability and accidental death.

OP contribution rate

The contribution for this second pillar varies according to age:

Affiliation to the 2nd pillar

• OP: anyone with an income of more than CHF 21,510 per year (2021 scale) is affiliated to the LPP. If this threshold is reached from the age of 17, the person concerned already starts contributing and can be covered for the risks of disability and death. From the age of 25, part of the money set aside is reserved for the retirement age in addition to the first pillar.
• UV: this benefit covers cases of accidents that can lead to disability or death. If a person works less than 8 hours a week, only occupational accidents will be covered, so make sure in this case that your health insurance also covers accidents. If a person works more than 8 hours a week, both occupational and non-occupational accidents are covered by the insurance.

On average, considering the first and second pillars together, each individual generally receives between 60 and 65% of his or her last salary. However, in order to have enough means at retirement to devote oneself to one's interests, one can have recourse to an optional provident fund: the 3rd pillar.

The 3rd pillar: Completing the retirement

In order to really maintain your previous standard of living as well as your private needs, you need to think about an additional reserve that will allow you to fully finance your leisure time.

To do this, each individual is free to subscribe to a 3rd pillar. For cross-border workers, the 3rd pillar is similar to a PERP (National Retirement Savings Plan). This has several advantages. The best known is the tax advantage, as it is tax deductible up to a ceiling of CHF 6,785 per year per gainfully employed person (for employees affiliated to the 2nd pillar LPP).

In addition, it is possible to subscribe to it with a bank or an insurance company. At a bank, it will simply take the form of a tax-deductible savings account. With an insurance company, you will have the possibility to add risk benefits: disability and death. Note that in the 3rd pillar "insurance", it is possible to make a 3rd B pillar which can also provide tax benefits.

Be careful however, depending on your situation (cross-border commuter or resident in Switzerland), it may not be possible for you to take out a 3rd pillar. Ask your bank or insurance company for more information.