The 3 pillars of pension fund in Switzerland

What is the purpose of the 3 pillars of pension fund in Switzerland?

Switzerland is known for its solid pension system based on the three-pillar principle. Each of these pillars plays a specific role in guaranteeing the financial security of Swiss residents after they retire.

1st pillar: state pension fund

The first pillar is the state pension scheme, which is compulsory for all residents and workers in Switzerland. It comprises three key elements: old-age and survivors' insurance (AVS), disability insurance (AI) and supplementary benefits (PC). The first pillar covers vital financial needs in old age, disability, and death.

Aim: to ensure a minimum standard of living

Responsibility: State

Financing: 50% employer and 50% employee

Type of benefits: AVS, AI, supplementary benefits (PC), unemployment insurance (AC), loss of earnings allowance (APG), pension

2nd pillar: occupational pension fund

The second pillar is the occupational pension fund, managed by pension funds. It is compulsory for all employees earning more than CHF 22,050 a year (in 2023). The second pillar aims to maintain Swiss workers' usual standard of living after they retire. The self-employed can also take out voluntary second-pillar insurance.

Goal: Maintain standard of living

Liability: employer

Funding: employer (at least 50%) and all employees

Type of benefits: Compulsory pension fund (BVG), supplementary pension fund, Accident Insurance Act (UVG), lump sum or annuity

 3rd pillar: private pension fund

The third pillar is the private pension fund, which complements the first two pillars. It is divided into two parts: tied pension fund (3a) and unrestricted pension fund (3b). A tied pension fund is a tax-privileged form of saving that can only be withdrawn five years before retirement age or for certain specific reasons, such as paying off a mortgage or starting a self-employed business. On the other hand, an unrestricted pension provision is a form of savings that can be withdrawn anytime but does not have the same tax advantages as a restricted pension fund.

Purpose: Individual supplement to cover gaps in the pension fund

Liability: personal

Financing: 100% self-financing

Type of benefits: restricted pension (pillar 3a) and unrestricted pension (pillar 3b), lump sum or annuity (insurance)

Maximising the three pillars of your pension fund is essential to enjoy a financially comfortable retirement in Switzerland. Each of these pillars is specific in guaranteeing financial security when you retire.