The Three Pillar System In Switzerland - The Backbone Of The Swiss Pension System

By Author: Charles
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The Swiss pension system has proven its merits over the years, clearly making it one of the best in the world. It is reliable and enables the Swiss population to enjoy their old age with confidence and enthousiasm.

Each module of the three pillar system in Switzerland has a specific purpose and scope. Combined the three modules, if they are correctly structured, will guaranty the beneficiaries between 50 to 65% of their last salary at retirement. The three pillars represent typical Swiss values, by reflecting solidarity, hard work and personal responsibility.

The first pillar- Pillar 1: The state social security module
Pillar 1 provides disability benefits and a retirement pension plan. The module is mandatory for all Swiss citizens. Its objective is to secure the livelihood of the entire Swiss population, providing them with a basic standard of living at retirement. To receive the full pillar 1 pension of CHF 2’370.- per month, the beneficiary needs to contribute an average of roughly CHF 85’000.- per year for a period of 44 years.

The second pillar - Pillar 2: The professional pension module
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... Pillar 2 provides a compulsory professional retirement pension plan that, combined with the benefits of the first pillar, contribute to a more comfortable retirement. It also includes death and disability insurance, accident insurance, and an optional compensation scheme for illness-related loss of income. The beneficiary generally contributes to this module for at least 40 years. Unlike pillar one this module is based on a capitalisation model. This means high earners will have larger pillar 2 pension benefits than low or average earners. This module is the central pillar of the three-pillar system in Switzerland.

The third pillar - Pillar 3: The private pension module
Pillar 3 provides a voluntary private pension plan that is designed to give each beneficiary sufficient cash flow at retirement. Due to the high cost of living in Switzerland the average retiree’s monthly pension is required to cover fixed costs. To finance travel, a car and other extras a well funded savings account is vital. The best way to achieve this is by subscribing to a private pillar three savings plan over a long period of time. This not only guaranties sufficient savings at retirement, but thanks to generous government tax incentives saves tens of thousands of Swiss Francs over the life of the savings plan. All pillar 3 pension modules can include death, loss of income and disability benefits if a personal analysis reveals short-falls in the pillar 1 and pillar 2 insurance compensation schemes.

There are two variants of the pillar 3 plan, the pillar 3A and the pillar 3B. The differences are explained below.

What are the differences between Swiss Pillar 3A and 3B plans?

Pillar 3A plan
- The maximum annual contribution is capped.
- Participation is limited to those that contribute to a pillar 2 professional pension plan.
- Its savings plans are long-term and locked into the age of retirement, or at least five years thereof.
- The capital is locked into the retirement plan unless you:
- leave Switzerland
- buy a house
- create a business
- wish to reimburse part of an ongoing mortgage policy
- If the plan is linked to a life insurance policy the list of beneficiaries is pre-defined; only limited changes are possible.
- Large Federal and Cantonal tax benefits are accorded throughtout Switzerland.
- A pillar 3A plan can be subscribed to via an insurance policy, or via a blocked bank account. The 3A insurance policy offers significant benefits, which include:
- higher returns
- financial security for the family thanks to life and loss of income insurance
policies that can be linked to the savings plan
- a waiver of premiums clause, which guarantees that the contract will reach its term and financial objectives
- the unique opportunity to maintain and fund a secure Swiss Franc investment even if one leaves the country before the term of the contract

Pillar 3B plan
- The annual contribution is not capped
- Contribution is open to everyone
- Its savings plans can be done for the number of years desired
- the capital can be taken when it is required, for any reason.
- If the plan is linked to a life insurance policy the list of beneficiaries is open
- Only Geneva and Fribourg offer Cantonal tax benefits for 3B plans
- A pillar 3B plan can only be subscribed to via an insurance policy

The benefits of investing in the Swiss Pillar 3 plan
- The beneficiaries receive significant tax relief
- The plans can be tailored to the personal investment strategy of each individual. Pillar 3A and 3B plans can be adapted to personal goals, time frames, attitudes to risk and financial security requirements.
- The plans help the retiree to achieve and maintain a comfortable lifestyle.
- They bridge the shortfalls of pillar 1 and 2 and cumulate their benefits.
- Pillar 3B plans are flexible and can be adapted to each individual situation.
- They offer risk compensation with death, loss of income and disability benefits
- They provide capital for real estate investment or mortgage depreciation
- They offer the unique opportunity to maintain and fund a secure Swiss Franc pension fund even if one leaves the country before the age of retirement
- They oblige us to plan for the future for peace of mind

The list of benefits is too long to ignore. We highly recommend contacting the Expat-Experts three pillar specialist, Charles McHugo, on +41 78 601 40 90 to help you to structure the plan that is best suited to your personal situation.