When I first arrived in Switzerland and started my first job, I had no idea about the pension system here. All I know is that every month, there is a certain percentage of my salary deducted and going into my pension. Unlike in Singapore, whereas a residence, a fixed 20% of your gross salary is deducted, the deduction percentage in Switzerland varies. It depends on your age, marital status, and so on.

To help those who just arrived in Switzerland, I summarized the findings for your easy understanding. I’d appreciate some claps for my article and feel free to share it with others.

There are three pillars as they call it, in the pension system, namely Pillar 1, Pillar 2, and Pillar 3. Each of them has a different contribution mechanism and all of them adding together is what you will receive when you retire. In Switzerland, the official retirement age is 64 for females and 65 for males. Here is a list of retirement age by the country for your information.

Pillar 1: State Pension

This pillar is to secure a minimum standard of living and provide financial income for widows, widowers, and orphans. Anyone who lives and has gainful employment in Switzerland has to contribute to this pillar. The level of your 1st pillar pension depends on 3 factors:

1. The number of years contributed: it can from age 20 and you can have a contribution to this pension from you and your employer. When the contribution starts from when you are 20 all the way till you reach your retirement age, then you could reach the full pension.

2. Level of income: You will contribute half and your employer will contribute half to your pillar 2. i.e. 4.35 % of the income on which OASI contributions must be paid (no upper limit). If you are self-employed, then you contribute 8.1 % of your annual income. If the annual income is below 56 900 Swiss francs, you are allowed for a reduced rate to 4.35 %.

3. Contribution credits: when you have children under 16 years old or need to care for a relative. You can receive contribution credits that offset your contribution provided that the maximum retirement/disability pension is not exceeded.

However, what you can receive when you retire from pillar 1 is capped. It doesn’t matter how much you are earning and contributing to pillar 1 if you exceed the maximum pension cap, you don’t contribute more than the cap.

On the other hand, if you retire earlier than 64/65 years old, your pension is less. If you retire 1 to 5 years later than the retirement age, your pension is more.

For a married couple, the combined pension will be no more than 150% of a maximum single person’s pension. if it exceeds, the reduction will be applied to both married persons. In short, two married people receive less pension together than not being married ;).

You can always check how much you can receive from your pillar 1 when you retired from here or submit a pension forecast request which might incur a fee.

Pillar 2: Occupational Pension

For any employed person in Switzerland with a minimum annual income of CHF 21,330, he or she is obliged to contribute to pillar 2 pension. Unlike pillar 1 which goes to the state, your contribution to pillar 2 will be in your own account. Different companies will choose different pension account for their employees.

Whatever you contribute to pillar 2, your employer will contribute the same amount. The graph below shows the percentage of contribution per age group before tax.

In pillar 2, there is 2a and 2b. 2a is what you have to contribute, 2b is optional. When people receive a salary increase or there is a gap of years in contribution, one can choose to contribute to pillar 2b. It is before tax deduction. Or a self-employed person can voluntarily contribute. When you retire, you can receive 6.8% per year of your total pillar 2 pension amount.

What can you do with your pillar 2 money before retirement? When you want to purchase a property, you can use some of the amounts for the downpayment. The downpayment for a property in Switzerland is currently at 20%, and no more than 10% can from your pillar 2. If you want to found a GmbH type of company, which requires minimal CHF20,000 share capital, you can use your pillar 2 money.

Pillar 3: Private Pension

For many people, having pillar 1 and 2 is not enough for retirement. It might cover 60–70% of your monthly income. If it is not enough, then it comes to pillar 3. It is a voluntary contribution and also provides a tax benefit when you deposit to pillar 3a. The maximum amount per year to be put in pillar 3a before tax after deductions for employed persons is CHF 6,826, for a self-employed person is maximum CHF 34,128. The benefit of pillar 3 contribution comes in 4 folds: 1. it is tax-deductible. 2. it can be used for investment or purchasing insurance or both. 3. it can be used for home purchase and 4 it provides you an additional pension for retirement. In a way, if you use it smartly, it can save you tax from hundreds to more than a thousand, and on top of that, it can also bring you good investment returns.

In pillar 3a, you can choose to put your money into a bank solution or an insurance solution or a mix of both. Each offers its pros and cons, depends on your personal and family situation, you can choose a suitable one for you. There are many companies in Switzerland offer pillar 3a products, such as AXA, Credit Suisse, UBS, Swiss life, and so on.

In pillar 3, the 3a contribution is tax-deductible from your income, but 3b is not. However, depending on the type of investment you choose, there are a variety of rules and conditions. Capital-sum insurance with a surrender option, for instance, offers tax benefits. While you cannot deduct the deposits from your taxes and the surrender value is taxed as an asset during the term, at payout the entire amount is tax-free, including all earnings, provided you have complied with legal conditions. Pillar 3b contribution can also be taken out before reaching retirement age which provides more flexibility. There are 2 ways to invest your pillar3b contribution: insurance solution or a bank solution. Insurance solution provides you supplementary insurance to cover in the event of death and disability. I personally have a financial adviser to check through all my situations and recommended some gaps to be filled by either investment or insurance. So that in any event, I or my family will be protected. I think this an additional benefit of having an insurance solution. At the end of the day, it is very personal. It depends on your own situation and what you plan for retirement.

The Swiss pension fund is way more complicated than what I wrote here. You can go deeper into various bank solutions and insurance solutions, your situation will also change if you change your civil status or employment status. Overall, I hope this article gives you a broad view of the Swiss pension fund system.