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What is Switzerland’s 'second' pension and how you will benefit from it?

Helena Bachmann
Helena Bachmann - [email protected]
What is Switzerland’s 'second' pension and how you will benefit from it?
2nd pillar pension adds some more income after retirement. Image by Rudy and Peter Skitterians from Pixabay

Switzerland’s pension system is based on the three-pillar principle: state pension, occupational pension, and private pension. Let’s look at the occupational one.

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To understand how the Swiss pension scheme is set up, and what each of the three pillars provides after retirement in terms of finances, this article lays it all out in detail:

READ ALSO: How does the Swiss pension system work - and how much will I receive?

Now let’s move to the 2nd pillar.

Like the 1st one — the old-age AHV / AVS pension — the 2nd pillar is also obligatory (in contrast to the 3rd one, which is voluntary).

Also known as occupational pension (BVG /LPP), it is designed to enable pensioners to maintain their standard of living in retirement.

How exactly does this work?

To benefit from the scheme, you must pay in monthly contributions throughout your working life, if:

  • You are at least 17 years old
  • You pay into the 1st pillar
  • You are in fixed employment and earn at least 22,050 francs a year

You and your employer each pay half of the required amount, which is based both on your salary and your age.

From 25 to 34 years old, the contribution is 7 percent of your salary; 35 to 44, 10 percent; 45 to 54 years old,15 percent; and 55 to retirement,18 percent — each of these contributions spilt in half between you and your employer.

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What if you are self-employed?
 
In this case, you have no obligation to have an occupational pension fund, but it will be in your interest to voluntarily set up one with any Swiss pension fund.

You will have to pay the entire contribution amount yourself, but you will reap benefits, in terms of added financial security, once you retire.

Can you withdraw the accumulated BVG /LPP funds before you retire?

Only under some strict conditions.

For instance, you are allowed to do so ahead of time if you use the funds to purchase a home, pay off  your mortgage, or buy shares in a housing cooperative.

In these cases, the following criteria apply:

  • The property you buy must be your principal residence
  • Up to the age of 50 you can withdraw your capital in full
  • From the age of 50 upwards you can only withdraw part of that capital
  • You can only apply for an advance withdrawal once every five years If you are married or living in a registered partnership, you need the consent of your spouse or partner
  • If you later sell your property, you will usually have to repay the 2nd pillar capital in the amount that you withdrew.

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Can you withdraw your 2nd pillar pension capital if you leave Switzerland?

In principle, yes, but there are some exceptions.

You can’t do so if you are moving to an EU or EFTA (Norway, Iceland, or Liechtenstein) country — in this case, you will be insured according to  law applicable in those states.

A part of your occupational pension capital (the amount depends on your total assets) must remain in a blocked account in Switzerland and can only be paid out when you reach the retirement age.

The remaining part, however, will paid out.
 
How much occupational pension will you receive once you retire ? 

That will depend on how much you (and your employer) contributed into the 2nd pillar fund throughout your working years.. It will also depend on your last salary. 

As a general indication, the amount of 1st and 2nd pillar pension usually makes up 60 to 70 percent of your last salary.

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