The three-pillar system: a simple explanation

Building up pension provision in Switzerland

The purpose of the Swiss pension system with its three pillars is to ensure financial security for people in Switzerland in their old age, in the event of disability and in death cases. Our pension model is one of the most reliable in the world. It has proven its merits over many decades, and it dates back to the establishment of Old-Age and Survivors' Insurance (AHV), Disability Insurance (IV/DI) and Loss of Earnings Benefits (EO) in 1948. 

The three-pillar system has been enshrined in the Federal Swiss constitution since 1972. It is based on the interaction between state protection of basic livelihood, occupational benefits insurance (which includes employers), and tax-privileged private pension provision. The Swiss pension system is a key supportive factor in the social and financial security of people living in Switzerland. 

What is the structure of the Swiss three-pillar pension system?

Switzerland’s pension system consists of three pillars: state, occupational and private pension provision. The purpose of Pillar 1 – old-age, survivors' and disability insurance, or AHV – is to secure livelihood. Pillar 2 – occupational benefits insurance, or BVG – is intended to maintain the accustomed standard of living in old age. Both Pillar 1 and Pillar 2 are mandatory.

Pillar 3, which is voluntary, enables you to build up private pension provision so that you can be secure in old age, but it also allows you to save on taxes and insure risks such as death cases and occupational disability.

Pillar 1 – Securing your livelihood with state pension provision

Pillar 1 comprises old-age and survivors' insurance, disability insurance (AHV/DI), and also supplementary benefits under loss-of-income insurance (EL). AHV/DI provides coverage to secure the livelihood of insured persons in old age, in a death case, or in the event of disability. The purpose of supplementary benefits is to secure livelihood if other state security benefits or your own income are not sufficient. As a general rule, all people working and living in Switzerland are covered by Pillar 1 of the pension system. You can learn more about Pillar 1 here.

Pillar 1 at a glance:

  • AHV, DI, EO
  • Mandatory state pension provision
  • Objective: to secure the livelihood of all people living and working in Switzerland

Pillar 2 – occupational benefits insurance 

Pillar 2 of the Swiss pension system consists of occupational benefits insurance (BVG), also commonly referred to as the "pension fund". The purpose of occupational benefits insurance is to supplement the benefits from AHV/DI in old age, in the event of disability and in a death case, and to ensure that your accustomed lifestyle can be maintained. All employees with income above the annual salary subject to AHV contributions (minimum annual BVG salary) are insured by the pension fund chosen by their employer, and through the automatic BVG deductions. Like the insurance coverage under Pillar 1, occupational benefits insurance is therefore part of mandatory pension insurance. The second pillar also includes occupational accident insurance, daily sickness benefits insurance and the vested benefits institutions. You can learn more about Pillar 2 here.

Pillar 2 at a glance:

  • Occupational benefits insurance (BVG) or "pension fund", accident insurance, daily sickness benefits insurance, vested benefits institutions
  • Additional mandatory pension provision for working people
  • Objective: to maintain your accustomed lifestyle

Pillar 3 – voluntary private pension provision

The third pillar (comprising Pillar 3a and Pillar 3b) is a voluntary addition to the benefits from AHV/DI and occupational benefits insurance. Nowadays, benefits from Pillars 1 and 2 will often be insufficient to maintain a person’s accustomed lifestyle in old age. For this reason, many people in Switzerland opt for additional private pension provision based on Pillar 3, in order to avoid unpleasant income gaps. The third pillar consists of tied pension provision (Pillar 3a) and flexible pension provision (Pillar 3b). Contributions to 3a tied pension provision are tax-privileged and can be deducted from taxable income, up to a defined maximum. You can find out more about Pillar 3 here.

At a glance:

  • Voluntary private pension provision
  • Tied pension provision 3a (tax-privileged) and flexible pension provision 3b
  • Objective: to maintain your accustomed lifestyle and fulfill your individual wishes in retirement

Frequently asked questions

  • How can I achieve my savings goals for retirement?

    Pillars 1 and 2 of the Swiss social system secure the minimum financial requirements in the period following retirement. If you intend to pursue additional savings goals for your old age and you want to exclude income gaps as far as possible, you should opt at an early stage for a pension solution based on Pillar 3a tied pension provision or Pillar 3b flexible pension provision. AXA offers a variety of attractive solutions for these purposes

  • How can I protect myself in case of unemployment?

    In addition to old-age and survivors' insurance (AHV), disability insurance (IV/DI – which protects employees in case of disability – and supplementary benefits under loss-of-income Insurance (EL), Pillar 1 also includes state unemployment insurance (ALV). This covers employees against unemployment. There are also private options that offer protection against unemployment and financial solutions in the worst-case scenario. Self-employed persons in particular are well advised to take out a suitable pension solution for this purpose.

  • What is a pension gap?

    In order to maintain your accustomed standard of living after retirement, you should have about 80% of your last gross salary available to you. A “pension gap” is the term used if the amount paid out per month in retirement is below this figure. If you want to give yourself additional security in old age, you can take out pension products that serve this purpose.

  • How does a pension gap actually arise?

    A pension gap can arise for various reasons – for example, if a person was not gainfully employed for a a lengthy period, so no amounts were paid into Pillars 1 and 2 as a result. However, pension gaps can also arise quickly if accrued capital from the pension fund or a Pillar 3a solution is used to finance a home of one’s own, or to start out in self-employment. For this reason, it is advisable to plan your private pension provision and prevent any pension gaps in good time, for example with life insurance based on Pillar 3a. In addition, this allows you to protect against risks such as occupational disability. 

  • Why does the Swiss social system have three pillars?

    The three-pillar structure of the Swiss pension system has evolved over many decades. The Swiss social system has constantly been expanded by the Federal government and the people, because expectations of life after retirement have risen continually over time, and saving for old age has become an increasingly important concern for the general public. The three-pillar system has already been enshrined in the Federal constitution since 1972, and it was implemented definitively with the launch of the tax-privileged third pillar (3a and 3b) in 1985.

  • Can I also protect myself against loss of earnings due to an illness through Pillar 1?

    Unfortunately, the answer is no. Effective protection against long-term loss of earnings is not possible with Pillar 1 (AHV), not can it be achieved with Pillar 2 (pension fund). For this purpose, you should build up suitable private pension provision, for example on the basis of Pillar 3a tied pension provision or Pillar 3b flexible pension provision.

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