Thursday, September 25, 2008

How does the Swiss Pension system work?

The Swiss Pension system is based on a 'three pillar' complimentary combination of state, occupational and personal contributions.

1st Pillar - (AHV/IV - AVS)
The first pillar of the pension system is compulsory for the entire working population, and is funded from social taxes. This is designed to provide for the basic income needs in retirement. Contributions are deducted from taxable income and only taxed at the time of payment. Interest on contributions is not taxed.

2nd Pillar - (BVG/UVG - LPP)

Compulsory for all employees in Switzerland, and levied by social taxes payable equally by employer and employee. The percentages levied increase with age, and varies between 7 - 18%. Your pension plan can be 'liberated', with a cantonal tax levied, in certain circumstances, including commencing self employment, leaving Switzerland permanently, or within 5 years of normal retirement age.

3rd Pillar - (3a/b)

The 3rd Pillar is the third tier in the Swiss pension system, and is available to both the employed and the self employed in Switzerland, with differing maximum limits according to your employment situation.

* Employed - Maximum CHF 6,365 (2007)
* Self Employed - CHF30,000 (2007)

There are various types of 3rd Pillar Investments, and although intended as a long term tax efficient Pension 'top-up', withdrawals can be made under certain circumstances, including:-

* Purchasing your principal residence in Switzerland
* Leaving Switzerland permanently
* Becoming self-employed in Switzerland
* Retirement

In general the 3rd Pillar is not the best option for an Expatriate. There are more portable and tax efficient saving plans.

read this, if you also have a UK pension fund 

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2 comments:

drivemecrazy17 said...

I have spoken to a few companies such as Swiss Life & UBS who impose initial deposits of 20,000 and 30,000 respectively for a UK national working in Switzerland.

If pillar 2 is mandatory for an employee, what happens if the initial deposits are not affordable?

Quintijn said...

There is no mandatory deposit for a client that is resident in
Switzerland.

However, if an individual is trying to open an account and they are NOT a resident in Switzerland then a minimum deposit will be imposed and this can actually be nearer 50,000 depending on the bank.