2nd pillar: How does it work, and what is it for?
How does your LPP occupational pension scheme work, and what is the purpose of a pension fund?
Occupational pension provision is a key component in ensuring a financially secure retirement. Most retirement assets are accumulated within 2nd‑pillar pension funds.
Secure your future with the 2nd pillar
The 2nd pillar is an essential part of the Swiss pension system, designed to maintain your standard of living after retirement. As incomes have risen over time, the maximum Old‑Age and Survivors Insurance (OASI/AHV) pension alone is no longer sufficient to cover your needs once you stop working.
To be affiliated with the 2nd pillar, you must:
-
be at least 17 years old
-
be insured under OASI/AHV
-
earn an annual salary of more than CHF 22,680 from an employer (2026 threshold).
Why pension fund projections are not guaranteed
Due to demographic changes, pensions must be paid out over increasingly long periods, as life expectancy continues to rise. As a result, the future pension amount shown on your LPP/BVG certificate is not guaranteed.
It is an estimate based on:
-
the legal framework currently in force,
-
assumptions regarding future investment returns,
-
regular adjustments made according to market conditions.
Your pension only becomes a legally vested entitlement once you begin receiving it.
How does it work in practice?
1. Determining your insured salary
Unlike OASI/AHV, the 2nd pillar is a personal savings system. The contributions paid by you and your employer are credited to your name, much like a bank account.
Your contribution amount depends on your insured salary, which is calculated based on your gross salary (OASI‑liable income) minus the coordination deduction. This deduction reflects the portion of income already covered by the 1st pillar and prevents double insurance. In 2026, it amounts to CHF 26,460 (although some employers may choose to apply a lower amount).
2. Applying the contribution rate
Once the insured salary has been established, age‑dependent contribution rates are applied. Employers must cover at least 50% of these contributions, and the remaining portion is deducted directly from your gross salary.
3. Management of your pension assets by the pension fund
Your pension assets are managed by a pension fund (also called a pension foundation), which must invest them prudently and in accordance with strict investment rules (OPP2/OPA2). The minimum interest rate that must be credited to your mandatory pension assets is set by the Federal Council (1.25% in 2026), although pension funds may grant a higher return if market conditions allow.
The conversion rate: a key element
The conversion rate determines the percentage of your accumulated capital that will be paid out annually as a pension. This rate is expected to continue decreasing in the future, resulting in lower pensions. The minimum conversion rate for mandatory LPP/BVG assets is currently 6.8%, but pension funds are free to apply their own rate to the portion of assets exceeding the statutory minimum.
Pension funds as a source of retirement income
The interest credited to your pension assets depends on overall economic conditions and expected returns on invested capital. For 2026, the minimum interest rate is 1.25%, meaning that lower interest rates translate into slower growth of pension assets, which can lead to reduced retirement benefits.
A pension fund is an important means of guaranteeing retirement income. However, as life expectancy rises, it is important to keep abreast of current legal provisions and assumptions about future returns on capital.