Thomas Knox is a fully qualified financial advisor based in Geneva
and is licensed to advise clients in both Switzerland and the EU.
He has a wealth of experience working with expats from all over the world, and he can help you achieve your financial goals.
THE SWISS PENSION SYSTEM IS MADE UP OF 3 PILLARS
WHat are the 3 pillars and how do they work?
Switzerland's pension system is renowned for its comprehensive coverage, aiming to provide financial security in retirement. It is structured around three pillars, each serving a specific purpose:
Pillar 1: State Pension (AHV/AVS/DI)
- Purpose: To provide a basic income for all residents in old age, disability, or widowhood. It acts as a safety net, ensuring a minimum standard of living.
- Funding: Financed through mandatory contributions from employees, employers, and self-employed individuals.
- Benefits: The AHV/AVS/DI provides pensions based on earnings history and marital status. Additionally, it covers disability and survivors' benefits.
- Limitations: Due to its role as a basic safety net, the AHV/AVS/AI pension is generally not sufficient to maintain the pre-retirement lifestyle.
Pillar 2: Occupational Pension (BVG/LPP/AVS 2e)
- Purpose: To bridge the gap between the basic state pension and the desired standard of living in retirement.
- Funding: Mandatory contributions from employees and employers, based on earnings.
- Benefits: Offers a defined benefit or defined contribution pension, depending on the plan. Benefits are typically higher than those provided by Pillar 1.
- Coverage: Primarily covers employees in the private sector. Public sector employees often have similar plans under different legal frameworks.
Pillar 3: Private Pension (3a/3b)
- Purpose: To supplement the income from Pillars 1 and 2, allowing individuals to save for additional retirement income or specific goals.
- Funding: Voluntary contributions by individuals.
- Benefits: Offers flexibility in investment options and tax advantages.
- Types:
- Pillar 3a: Tax-deductible savings with restrictions on withdrawals before retirement.
- Pillar 3b: Non-tax-deductible savings with more flexibility in terms of investment and withdrawal.
How the Pillars Work Together
The three pillars of the Swiss pension system are designed to complement each other, providing a comprehensive approach to retirement planning. Pillar 1 forms the foundation, ensuring a basic income. Pillar 2 aims to maintain the pre-retirement standard of living. Pillar 3 offers the opportunity to enhance retirement income and achieve specific financial goals.
By combining these three pillars, individuals can create a personalised retirement plan that aligns with their financial situation and aspirations. It's important to note that the relative importance of each pillar may vary depending on factors such as income level, occupation, and personal financial goals.