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Why is a third pension pillar so important?

Helvetia offers clarity and personal advice

The pension system in Switzerland is one of the country’s outstanding features. It consists of three pillars. The first pillar – comprising old age and invalidity insurance – provides basic financial cover for all people living in Switzerland in the event of old age and incapacity to earn. However, this pension alone would never be enough to cover one’s cost of living.

This is why the second pillar - occupational benefits - was set up. with the pension funds. Through second-pillar pensions savings, employers and employees contribute jointly towards the employee’s financial needs during retirement. The exact contribution varies depending on the employee’s income.

In combination, the pension benefits from these two pillars should cover 60% of a person’s income and thus guarantee their livelihood. Unfortunately, this minimum level is rarely reached nowadays (for reasons worth discussing with your trusted insurance adviser). To maintain your accustomed standard of living, you would be well advised to plan your pension such that it pays at least 80% of your former income.

The third pillar of private pension provision is designed to bridge the gap. A distinction between pillar 3a, to which your contributions are tax deductible in contrast to 3b, where your provisions are not tax deductible but have other advantages such as you can access the funds at any time and you can save a higher amount each year, 3A has a maximum amount of CHF 7'056 for employed individuals with pension fund. Employed people without a pension fund may pay 20% of their net income, up to a maximum of CHF 35'280. The contributions can be changed by the Swiss government.

This third pillar also serves to close income gaps in the event of death or incapacity to earn. The incapacity to earn contributions from 1st and 2nd pillar due to illness are lower than in case of accident.

Finally, the second and third pillars play an important part in the purchase of residential property, as well as other topics related to personal pension planning. It is important to understand the full implications of all of the pillars of your Swiss pension.

The specialist advisers at Helvetia can offer you a personal consultation where they will help to set the right course for your retirement early on. Based on your pension fund statement and your income, they will discuss the current situation with you, calculate how much pension benefits you will need in the future, and assist you with putting the appropriate measures into place. This way, you gain clarity and the certainty that your personal retirement planning is based on three stable pillars.

Helvetia advisors are available to answer any questions, email: email hidden; JavaScript is required.

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OASI/DI = Old Age and Disability Insurance / Disability insurance
LOB/ LAI = Low of occupational benefits - Federal Act on Occupational Retirement, Survivors' and Disability Pension Plans
LAI = Federal Law on Accident Insurance