If you are one of the numerous British expats who live and work in Switzerland, you may well want to know how company pension plans operate. Here, we outline occupational retirement savings schemes, known as the second pillar of Swiss pensions.
Benefits of Pillar 2 Swiss Pensions
In conjunction with the first pillar (state pension), the second pillar of the Swiss scheme provides occupational benefits. Collectively, the two aim to maintain retirees' basic standards of living.
Employers administer second pillar occupational schemes, which are funded by both the company and the employee. Payments to the second pillar of a Swiss pension plan are from gross income, so all the contributions benefit from tax relief.
The second pillar pension is obligatory for all adults, including expats who work in Switzerland and earn more than the minimum wage. By default, employees who earn annual salaries higher than CHF 21,150 become members of their company's second pillar scheme; employers deduct monthly contributions at source from gross salaries of between CHF 24,675 and 84,600.
Additionally, employers must at least match employee pension contributions. To put it another way, employees pay half – or less, in some cases – of the total monthly sums deposited into the second pillar scheme on their behalf. The percentage of salary that is payable in contributions depends on the pension fund member’s age, their gross salary, and the fund involved.
Notably, employees whose salary does not meet the minimum threshold, whose employer is exempt from making AHV contributions, or who are self-employed may opt to make voluntary contributions.
How Pillar 2 Integrates with Pillar 1
Together with the first pillar provided by the Swiss state pension, the second pillar aims to cover up to 60 per cent of final salary.
When taking retirement benefits in Switzerland, the tax treatment is also favourable. Capital sums are subject to income tax at a favourable rate, usually without considering any other incomes. Progressive rates of tax may, however, begin to apply when first and second pillar pensions combine with the third pillar – specifically, a restricted type 3a scheme, which is an individual private pension plan designed for additional purchases.
How to Purchase Missing Pension Years
Of particular interest, as retirement nears, the buyback system makes it possible to pay missing years to increase future benefits. Because the optimum times and ways to take advantage of this facility vary with individual financial circumstances, it is best to receive professional advice.
Also, it is possible to make regular additional voluntary contributions to supplement the minimum monthly payments. Known as AVCs in UK private pension plans, similar extra pension payments are termed 'purchases' in Switzerland. By using their company plan or local Swiss products, employees can top up or fill any gaps in their retirement savings. Again, additional purchases are tax deductible.
Notably, individuals who move to Switzerland and who have not previously contributed to a Swiss pension plan are limited to making maximum contributions of one-fifth of their salary during the first five years. Conversely, on emigrating, it may be possible to withdraw from second pillar schemes.
If you require confidential advice to make the most of your pension options, optimise your retirement savings or organise a pension transfer, we invite you to contact our financial experts here at Belgravia Wealth Management. Whether you plan to change pension schemes, move between different employers or investigate a Swiss pension transfer, we will be pleased to advise you on suitable local Swiss products to provide for your future.