Pension funds: definition and how they work
Pension funds play a key role in building your retirement savings. Discover how they work, their advantages and their place within the Swiss pension system.
What is a pension fund?
A pension fund is a long‑term savings and investment mechanism designed to finance retirement and cover life risks.
It works by:
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collecting regular contributions,
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investing them in financial markets,
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with the aim of building capital or generating a future pension.
In common terms, pension funds are often associated with pension plans or occupational pension schemes, particularly within the second pillar.
What is the role of pension funds?
Pension funds play a central role in ensuring long‑term financial security.
They make it possible to:
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prepare for retirement,
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cover risks such as disability and death,
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grow savings within a structured framework.
By investing contributions, they help increase capital over time, going beyond traditional low‑yield savings solutions
How do pension funds work?
Their functioning is based on a straightforward principle.
Regular contributions
Members contribute regularly:
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through their employer as part of the second pillar,
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or voluntarily within individual pension solutions.
Contributions are typically shared between:
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the employee,
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and the employer.
Professional investment management
The collected assets are invested across various asset classes:
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equities,
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bonds,
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real estate,
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and other financial instruments.
The objective is to generate long‑term returns, within a framework of disciplined risk management.
Benefit payments
At retirement (or in certain specific situations), assets may be paid out as:
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a pension,
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a lump sum,
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or a combination of both.
Benefits depend on:
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the level of contributions,
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the duration of savings,
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and investment performance.
Where do pension funds fit within the system?
Pension funds are an integral part of the three‑pillar system:
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within the second pillar (LPP), as occupational pension schemes,
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within the third pillar, through individual pension investment solutions.
They therefore act as a bridge between pension planning and investment, combining:
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long‑term security,
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structured savings,
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and return potential.
Advantages of pension funds
Pension funds offer several key benefits:
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tax‑efficient framework, depending on the pension solution,
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potentially higher returns than traditional savings,
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professional asset management,
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diversification of investments,
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contribution to long‑term financial security.
Points to consider
Like any long‑term investment, pension funds involve:
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exposure to financial markets,
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performance that varies depending on market conditions,
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specific rules depending on the pillar and institution.
It is therefore important to adopt an approach aligned with:
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your investment horizon,
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your risk tolerance,
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your overall financial situation.
Pension funds within a broader strategy
Pension funds should not be considered in isolation. They are part of a broader framework that includes:
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optimisation of the second pillar,
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structuring of the third pillar,
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retirement planning,
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tax considerations,
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personal financial objectives.
A holistic approach allows you to make the most of these instruments over the long term.
Pension funds are a key tool for preparing for retirement by combining savings and investment within a structured framework. When properly understood and integrated into a broader strategy, they help strengthen long‑term financial security.
Our pension funds are designed according to robust principles of diversification, liquidity and risk management, supporting the long‑term growth of your capital.
Want to know more? Contact a Piguet Galland advisor