To ensure that you start your retirement without any worries, it is key to plan and prepare well in advance. We show you which financial considerations and other preparations are important at which point in time – including a checklist for the time before and after retirement.
The first pillar forms the state-run and mandatory basis of retirement provision in Switzerland. Its aim is to guarantee an income that secures your livelihood in retirement and that covers basic living costs. The system operates on the principle of solidarity or the pay-as-you-go system: The population liable for contributions pays contributions that are used to finance the pensions of retirees. Those who earn more pay higher contributions and thus support insureds with lower incomes. In this way, the first pillar helps to ensure social security in old age for all.
The second pillar is mandatory for most people in employment in Switzerland. It supplements the state OASI and is intended to ensure that you can largely maintain your accustomed standard of living after retirement. It is financed by employees and employers. Together, they make regular contributions to the pension fund for personal retirement assets during the employee’s working life (fully funded occupational benefits). Together with the OASI pension, the second pillar generally covers around 60% of previous income and is therefore a key element of financial security in old age.
The third pillar is a voluntary, private supplement to state and occupational pensions. It enables individuals to close gaps in their retirement provision and supplement the retirement benefits from the first and second pillars as needed. A distinction is made between restricted provision (Pillar 3a) and flexible provision (Pillar 3b). In Pillar 3a, insureds benefit from tax advantages, as annual contributions up to a specified maximum amount can be deducted from taxable income. The contributions are self-financed, and depending on requirements, various risks such as disability and death can also be insured. The third pillar thus offers flexible options for strengthening individual financial security in old age.
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Those who continue to work after reaching the normal retirement age can defer their retirement benefits and thus increase the amount they receive.
If you lived or worked in Switzerland during your working life and would like to retire abroad, you can have your OASI pension paid out abroad.Occupational benefits (Pillar 2) can also be drawn abroad, although the specific conditions depend on your pension fund. Anyone who moves abroad can also withdraw their Pillar 3a pension assets, but must deregister in Switzerland to do so. Further information on this and on the situation regarding retirement after moving abroad can be found on the federal government’s website.
Please note that your nationality may affect the payment terms.
It is best to start planning for retirement as early as possible, and at the latest by the age of 50. This will give you enough time to analyze your financial situation, close any gaps in your pension provision, and take advantage of tax-efficient measures. The earlier you start planning, the more flexibility you will have in shaping your retirement.
A pension gap arises when pension benefits are insufficient to cover actual financial needs in retirement. These pension benefits consist of your state pension (OASI), occupational benefits insurance (pension fund), and private retirement provision (Pillar 3). The difference between your financial needs in retirement and the retirement benefits from the three pillars is referred to as a pension gap.
You can find out how to close this gap in our blog “Identifying and closing pension gaps.”
Pensions from Pillar 1 and Pillar 2 are taxable income and are treated 100% as income. By contrast, capital payments – from your pension fund or Pillar 3a – are taxed at a reduced rate. This rate may vary depending on the canton. It is best to check directly with the tax authorities in your canton of residence for the exact regulations.
Tax rates at federal level and in most cantons are progressive – in other words, the higher the capital paid out, the higher the tax rate and the associated tax burden. In order to reduce this progression and tax burden on capital withdrawals, it is advisable to stagger capital withdrawals from your pension fund and Pillar 3a where possible: Spread the income over several tax periods. By staggering your capital withdrawals, you can easily save several thousand francs in taxes.
Capital in Pillar 3b is already taxed annually as assets during the term. This means that no additional taxes are payable when these funds are withdrawn upon retirement (except for wealth taxes, which continue to apply).
Do you have any questions, or would you like a no-obligation pension consultation? Our experts are there for you.
The purpose of Switzerland’s three-pillar pension system is to ensure that people in Switzerland are financially secure in their old age and in the event of disability or death.
The purpose of Pillar 1 is to secure livelihoods after retirement, in the event of disability and incapacity to work, or after a death.
The purpose of Pillar 2 is to enable people to maintain their accustomed standard of living after retirement.
