Occupational provisions (BVG/LPP) have formed the 2nd pillar of the Swiss social security system since 1985. Managed in a pension fund, they are designed to help people maintain their standard of living as far as possible after they retire.
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All the answers about the 2nd pillar (BVG/LPP)
What are occupational provisions (2nd pillar)?
Occupational provisions are company pension plans. They form the 2nd pillar of the Swiss social security system. The 2nd pillar is regulated by the Federal Act on Occupational Old Age, Survivors’ and Invalidity Pension Provision (BVG/LPP).
All employees liable for AHV/AVS contributions from the age of 17 to the statutory retirement age are subject to mandatory coverage. The self-employed can also be covered under the 2nd pillar if they wish.
2nd pillar benefits are designed to cover up to 75% of the last salary in conjunction with the AHV/AVS up to an annual salary (currently) of zweite-saeule-maximum-jahreslohn. Occupational pensions under the BVG/LPP are financed by the fully-funded system; each person saves and pays directly for their own benefits and the employer pays half of the contributions.
Why is the 2nd pillar so important?
Switzerland has a 3-pillar system for retirement provisions. The three pillars are intended to cover 80–90% of your previous income in the form of a pension.
The first pillar, the state AHV/AVS, DI, is mandatory pension insurance. It is intended to secure people’s basic needs after retirement.
The 2nd pillar – occupational provisions or BVG/LPP – is designed to enable people to maintain their standard of living. Or in other words: the 1st and 2nd pillars are intended to cover around 60–70% of your previous income. That’s why occupational provisions are so important.
The third pillar, pillar 3a or pillar 3b, covers the remaining 20–30% of your previous income and closes any coverage gaps. Gaps in coverage arise when the benefits paid out from the AHV/AVS and pension fund are not enough to cover your daily living expenses.
BVG/LPP – what can Swiss Life offer me in the form of occupational provisions?
There are many pension funds which have to invest the accumulated capital profitably to convert it at a legally stipulated conversion rate into an annual retirement or disability pension.
As the BVG/LPP cover is obligatory, all Swiss employers have their own pension fund. Alternatively, they may be affiliated to an industry pension plan via an employee benefits foundation, whereby the employee is accepted on commencing an employment relationship. The maximum insured salary, including in the event of disability of death, is about CHF 88 200 per annum under the BVG/LPP.
That roughly corresponds to the statistical average salary in Switzerland. Anyone who earns more than that or is self-employed needs to establish how they can acquire additional or full insurance through their occupational pension scheme. Moreover, given the current interest rate environment, official conversion rate and ageing population, many pension funds are experiencing difficulty generating sufficient returns.
Occupational provisions – what do I need to know as an employee?
Every employee subject to AHV/AVS contributions in Switzerland and earning CHF 22 050 or more per annum must be insured in the employer’s pension fund. The employer pays at least half of the pension contributions. The Federal Law on Vested Benefits has guaranteed since 1995, that insured persons do not incur a loss when transferring to another pension fund as a result of changing jobs.
The vested pension capital may be released prior to retirement (in German) under certain circumstances: an early withdrawal or pledge can be used towards the purchase of residential property for own use. The insured person may also decide not to withdraw a pension from the mandatory benefits coverage, but to have a lump sum paid out instead. The insured person must exercise this option at least one year prior to retirement.
Early retirement reduces the pension benefits. In the event of unemployment, the risks of disability and death remain insured while drawing benefits, however there may be a shortfall in your pension provision. You can prevent that by voluntarily paying BVG/LPP retirement credits into the pension fund. Swiss Life will be happy to advise you on that.
Summary:
- Every employee subject to AHV/AVS contributions is subject to mandatory insurance in the pension fund from a minimum income level
- The employer pays at least half of the contributions
- Vesting applies; you do not incur any losses by changing jobs
- Early retirement and a lump-sum withdrawal are possible
- Disability is also insured
What to consider:
In the 2nd pillar, a lower salary means lower benefits. Remember that in most pension funds you can only remain insured if your salary is above the defined minimum of zweite-saeule-minimum-jahreslohn (as of aktuelles-jahr).
When you draw your retirement benefits, you can choose between a lump-sum payment, a regular annuity and a mixture of the two. Please note: you cannot change your mind once you have made your decision. If you retire early, you must be willing to accept lower retirement benefits. You can compensate by making targeted second pillar purchases.
What do voluntarily insured people need to keep in mind?
If you work part-time and your annual salary from one or more companies is less than CHF 22 050, you can take out voluntary insurance with the Foundation for the BVG/LPP Contingency Fund. If you are self-employed, you take out insurance with your professional association or with your staff’s employee benefits institution. If neither is possible, you should contact the Foundation for the BVG/LPP Contingency Fund.
What to consider:
- Health check: pension funds may only use medical data on new members for supplementary insurance. A pension fund may not request medical data for compulsory insurance because it has a statutory obligation to accept insured members.
- Restrictions on non-compulsory benefits: pension funds may impose restrictions on supplementary insurance for people who are not considered entirely healthy. However, these may only apply for a maximum of five years.
- Certificate and regulations: your employer will give you the pension fund or pension certificate and regulations of your new pension fund. These set out details of your personal contributions, benefits and eligibility for benefits.
What benefits does the 2nd pillar provide?
Occupational provisions under the BVG/LPP insure the risks of old age, disability and death.
Event |
Benefit type |
Requirement |
Retirement (old age) |
100% retirement pension |
6.8% of interest-bearing retirement savings at the normal retirement age (65 for men and 64 for women). |
|
20% retired person’s children's benefit |
For every child of a pensioner (up to the age of 18; if in education or at least two thirds disabled up to the age of 25) |
Disability |
100% disability pension |
6.8% of the BVG/LPP retirement savings accumulated by the insured person up to the inception of entitlement including interest. Plus the sum of the BVG/LPP retirement credits for the missing years up to the retirement age, without interest. |
|
20% disabled person’s children’s benefit |
For every child (up to the age of 18; if in education or at least two thirds disabled up to the age of 25) |
Death |
60% widow’s/widower’s pension |
60% of the full disability/retirement pension. There is an entitlement if the widow/widower is responsible for one or more than one child or has reached the age of 45 and the marriage lasted at least five years. Otherwise there is a lump-sum payment to the value of three years’ pension. A divorced person is treated the same as a widow/widower, if the deceased was obliged to pay maintenance and the marriage lasted at least ten years. |
|
20% orphan’s pension |
20% of the full disability/retirement pension for each child of the deceased (up to the age of 18; if in education or at least two-thirds disabled up to the age of 25) |
What benefits do cohabiting partners receive?
By law, cohabiting partners do not receive any benefits from the pension fund. However, many providers allow you to name your life partner as a beneficiary. They will then basically receive the same benefits as a spouse or registered partner.
However, please read the conditions for entitlement to benefits. Swiss Life must provide benefits for a mutual child who is entitled to benefits. Or you need proof that you were in marriage-like relationship in the same household for more than five years.
What to consider:
- Check the benefits and conditions for you and your partner in your pension fund regulations. Your pension certificate shows your benefit entitlement.
- In addition, some pension providers require you to register your life partner during your lifetime. If you do not do this, the pension fund may refuse to pay benefits.
You can obtain further information from the Federal Social Insurance Office at bsv.admin.ch.
Would you like to find out more about private provisions?
Would you like to know more about private provisions, or do you have any questions? We would be pleased to provide you with more information – in a personal and non-binding consultation. Instead of advising you at our General Agency or at your home, we would also be happy to advise you via video.
