Swiss Pension System: 3 Pillars

• The document provides a concise overview of the Swiss pension system, emphasizing the importance of personal pension planning.
• It highlights the need for proper coordination between the 1st, 2nd, and 3rd pillars to ensure financial security.

Swiss Pension System Overview

• The Swiss pension system is based on the three-pillar principle, comprising the AHV/IV (state pension), occupational pension plans, and private pension savings.

Legal Framework

• The Swiss Federal Constitution (BV) establishes the three-pillar principle for old-age, survivors', and disability insurance.
• The entire system relies on various regulations and laws, which can be complex.

Objectives of Social Insurance

• Social insurances aim to mitigate the risks of economic hardship, especially due to old age, death, disability, illness, accidents, or temporary loss of earnings.

The Three Pillars

First Pillar (State Pension)

• The AHV/IV provides basic subsistence.
• It is mandatory for all residents and employed individuals in Switzerland and is managed by compensation offices.

Second Pillar (Occupational Pension)

• The BVG, along with the 1st pillar, aims to ensure the continuation of one's accustomed standard of living.
• It is mandatory for employees and is offered through pension funds and insurance companies.

Third Pillar (Private Pension)

• It supplements the other pillars and allows for individual needs to be met.
• Includes both tied pension plans which offer tax benefits but have restrictions, and flexible pension plans without tax advantages.

Taxation:

• The Confederation and cantons support private pensions through property and tax policies like savings, homeownership, and life insurance.

First Pillar - AHV (Old Age and Survivors Insurance)

• The AHV aims to adequately cover basic subsistence needs for the entire population.

Solidarity:

• Contributions consider full earnings, while pensions are limited, and credits are given for care work.

Insured Persons in AHV

• Residents and workers in Switzerland, as well as Swiss citizens working abroad for the Swiss Confederation, must have AHV insurance.

AHV Benefits for the Elderly

• With the AHV 21 law taking effect on January 1, 2024, regular old age is 65.
• Increases in the regular age of women to 65 years old with a phasing in between 2025 and 2028
• Benefits require 44 contribution years to be a full salary

AHV Flexibilization

• Individuals reaching the standard reference age can now defer their pension draws from one to five years, earning a monthly surcharge.

AHV Calculations

• Elements determining pension amounts include crediting years, income, and care credits.
• Contributions must be paid from age 20 onward for a full pension, or the pension will be reduced by at least 1/44.

Income Sharing

• Relevant in determining average income during marriage.

Spousal Income

• Each spouse is credited half of the income that each spouse earned during marriage years, to increase pension benefits

Contributions

• Are based on income from self-employment and direct federal tax.

Voluntary AHV

• Available to Swiss and EU/EFTA citizens leaving Switzerland, provided they were insured for five years before departure, though not for citizens outside the EU/EFTA.
• Applications must be sent to Swiss representation abroad.

Invalidensversicherung (IV)

• The goal is to reintegrate those with disabilities.
• Pensions occur when reintegration into working life is no longer possible.
• Reintegration takes priority with the concept : Integration over pension!.

People insured in IV

• All people with AHV insurance have disability insurance.

Insurance Benefits

• To receive disability benefits, the person needs to have an invalidity.
• Invalidity means a temporary or permanent condition as a consequence of an illness or disability

Benefits of Invalid Insurance

• A range of measures are available, such as integration measures, pensions , and various allowances.

Pension Benefits

• Integration assistance comes before payments, and if only partial progress has been made will the pension be approved

Second Pillar - Occupational Pension (BVG)

• The main goal of the the BVG is to maintain an adequate standard of living in retirement .
• Ensured through the risks of aging, death and disability
• Provides information according to mandatory legal requirements

Requirements for Coverage

• There is a requirement for a minimum annual income of 22,050 CHF.
• Coordinated wages are determined to calculate contributions.

Types of Coverage

• Contributions to the BVG coverage is shared between the worker and the employer
• Coverage ensures a certain level of benefits that can be chosen

Insured People

• The BVG has certain minimal agreements for the employees
• The coverage can be extended by the employer

Insured Wages

• The wages include between 22,050 and 88,200 CHF.
• Maximum insurance wage is 882,000 CHF

Pension Fund Purchases

• Is capped out
• Repayments include the return of home-ownership and certain divorce cases are possible

Payouts

• Payments are based on the regulation. Pensions are paid at a quarter capital
• Withdrawals can be agreed upon and can occur up to 3 years in advance

Retirement Services:

• Support for old age, surviving dependents, and disability are granted.
• The base for calculation will be wages
• Can occur for a quarter capital

Requirements to Receive Coverage:

• All participants who are invalid will be eligible, as long as they are 40 percent invalid

Invalidity Payments:

• Depend on percentages of incapacitation.

Child Benefit

• A child receives coverage as a survivor in full payments

Disability:

• Support is offered of two different areas and benefits

Payments for Surviving Dependents:

• Include benefits for marriage partner and children

How the Requirements are Structured:

• A spouse can have a claim with certain criteria
• Children get a benefit due to lose of a guardian.

Taxation of Contribution and Performance

• Contributions and performance are taxed
• Payments from the government are fully taxed as well

Safety and Compensation

• Safety is afforded to those that have trouble affording it

Free Movement:

• Ensures certain pension payments and assistance for any worker
• The goal is safe for old age

Home Ownership Promotion

• Allows to use savings from pensions and transfer the amounts towards their home-ownership

Pledge of Ownership

• People are allowed to make claims on possessions and the claims must match all current laws

Tasks

• The 2.Pillar gives assistance

Accident Insurance

• This gives financial safety to accidents and situations that impact a work
• It is led by SUVA

Regulations for Accident Insurance

• Covers all factors

Benefits for Accident Insurance:

• Care, support and money

3 Pillars of Private Compensation

• Supplements the base compensation, and are for private use

Tax Aspects (In Private Compensation)

• Allows for certain levels of deduction
• Provides freedom

Private (3a):

• There are individual benefits with options

Pension Agreements:

• Consist of agreements with banks and pensions

Payments by the Bundesrat

• In the pension part
• Contributions can be capped

General Taxation Aspects

• People can deduct different costs
• They can also lower the payments and obligations to adhere to these aspects

Goals of Saving

• They reduce the taxation
• Provide benefits toward a better standard of life

Guidelines in the Event of Marriage

• There should be an agreement made

Regulations in Event of Divorce

• They must occur with agreement

Property Rights

• Provide a guarantee for those to make a payment

3a and 3b Pilliars

• 3a is a base benefit while 3b is an extension

Task:

• What purposes and benefits are the two options are trying to provide