Switzerland Fact-File Part 7:
Business Owner Welfare and Lifestyle

7.2 Switzerland Business Domestic Pensions

The Structure of Pension Provision for Individuals in Business: Domestic Pensions

Switzerland’s retirement provision is built around the so-called ‘three pillars’ system. These are:

Pillar 1: State benefits
Pillar 2: Occupational pension
Pillar 3: Individual supplement and private pension.

The first pillar relates to the state retirement pension (AHV). Contributions to this scheme are split between employer (where there is one) and employee, with the amount deducted from wages, and participation is mandatory for all employees and the self-employed (who must, obviously, pay their own contributions). Men over 65 and women over 64 may draw a pension provided that they have contributed towards the scheme for at least one year; it is also possible to draw a state pension early, although the amount will be reduced for every year before retirement age that the pension is drawn.

The second pillar comprises an occupational pension scheme (which can be provided by a company, the state, or a private fund) and certain elements of the state retirement pension scheme. In combination, these two strands are designed to provide a pension of at least 60% of a person’s final salary. Self-employed workers in Switzerland are not obliged to contribute to the occupational element of the pension system, but they may do if they desire. Employees (earning above a certain threshold) are obliged to contribute, however, at varying rates according to age.

The third pillar concerns voluntary contributions to personal pension plans, and contributions can attract tax benefits (including that contributions are deductable from the taxable base and any growth in pension funds is non-taxable). Contributions to private pensions can be used to make up for gaps in contributions to the other two elements, and can be used in this regard by the self-employed, should they choose not to go the occupational scheme route.

Employers are obliged to provide at least the minimum requirement of the second pillar for their employees, with the cost shared between employer and employee.

In recent years, Switzerland has changed the legislation governing pensions. Whilst contributions and investment returns are not taxed, the actual pension payments, once paid out as a retirement pension, are taxed.