Understanding how pensions work in Switzerland

Whether you’re planning to work in Switzerland, or are a foreign worker who has spent part or all of your career in Switzerland, you’re bound to have a number of questions about the Swiss pension system. How does it work? How do you claim your pension? Let’s take a look in this practical guide.

The Swiss pension system is less complex than one might think: it is known as the ‘three-pillar’ system. These are the cornerstones on which Swiss society relies to ensure a comfortable retirement for all Swiss workers.

The three-pillar system: AVS, LPP and private pension provision

• The first pillar is the compulsory social security scheme, which consists mainly of the Old Age and Survivors’ Insurance (AVS) and the Disability Insurance (AI). All workers, whether Swiss or not, are covered by the AVS. It should be noted that there are also so-called supplementary benefits (PC) for individuals with more specific needs.

• The second pillar covers occupational pension provision and retirement insurance (LPP). Here too, the Swiss LPP applies to cross-border workers. Governed by a federal law on occupational pension provision, it enables all contributors to accrue transferable rights, which may even be recoverable depending on the circumstances.

• The third pillar is private pension provision. In principle, it is optional, but in practice it remains popular with the vast majority. It enables Swiss citizens to supplement their second pillar and build up a more substantial retirement savings pot. The third pillar is divided into two categories (known as A and B). In short, the 3A is regulated, offers tax deductions, but is reserved solely for Swiss tax residents. The capital cannot be withdrawn until retirement or in specific cases, such as buying a property or leaving Switzerland. The other option, 3B, is a more flexible savings scheme, easily accessible and open to cross-border workers. Its only drawback is that it does not offer tax benefits.

What rights do foreign nationals, cross-border workers and former workers have?

Whether you are an expatriate, a cross-border worker or a former resident, your contributions in Switzerland are not lost. The rules depend on your circumstances:

• If you remain in the European Union: your years of service in Switzerland are taken into account under bilateral agreements between member states. In practice, you will receive an AVS pension proportional to your contributions, paid directly into your country of residence. Please note: EFTA countries also benefit from this scheme (Iceland, Liechtenstein, Luxembourg and Norway).

• If you are leaving Europe: you can request a lump-sum payment of your LPP (2nd pillar) savings. However, there is one condition: you must no longer be subject to compulsory insurance in an EU/EFTA country.

• If you are a cross-border worker: your Swiss entitlements (AVS and LPP) are in addition to those accrued in your country of origin. You will therefore receive a combined (multi-country) pension, calculated by each country based on your periods of employment.

• To retain your entitlement to unemployment benefits: the U1 form summarises your periods of employment and the contributions you have made in Switzerland. Don’t forget it – it is essential if you are moving to work in another EU country. For example, you will be asked to provide this form by France Travail (formerly Pôle emploi) in France to calculate your entitlement to unemployment benefits following employment in Switzerland.

The key point to remember is that any former employee who has left Switzerland retains their pension entitlements. To claim them, you must submit a claim to the relevant AHV compensation fund and BVG pension fund.

Statutory retirement age, early retirement, AHV reform, mixed retirement: retiring in Switzerland is not something you can just wing. The choices you make will have a direct impact on the amount you receive.

Statutory retirement age and early retirement options

In practice, you can claim an early retirement pension up to two years early. However, this will result in a lower OAS pension. Logically, the earlier you retire, the greater the reduction: expect a reduction of around 6.8% for each year you retire early.

The 2024 AVS reform: what’s changing for women

Since 2024, the retirement age for women has been gradually rising from 64 to 65, with the aim of bringing it into line with that of men by 2028. Women approaching retirement are covered by transitional measures, but the trend is clear: people will have to work longer.

Deferred or combined pension (multi-country): how does it work?

You can delay your retirement by working for a further 1 to 5 years, with the added bonus of a higher pension. And if you have worked in Switzerland and other countries (EU/EFTA), your pension entitlements are also combined: each country pays its share. The result: a combined pension!

Each pillar has its own set of rules. To claim your Swiss pension without losing any entitlements, you therefore need to be aware of the key steps involved in claiming your AVS. With the right approach, you will also be able to repatriate your 2nd and 3rd pillars without any difficulty.

How do I claim my first pillar (AVS) pension?

Old Age and Survivors’ Insurance (AVS), the first pillar, must be applied for through the compensation fund to which you have paid contributions. Please note, however, that the application must be submitted six months before you retire. If you live in the EU or EFTA, the application must also be made through the pension authority in your country of residence. Please note that without a written application, no OASI pension will be paid.

How do I claim my 2nd pillar (LPP) pension?

Occupational pension provision (LPP), the second pillar, is claimed through your former employer’s pension fund. You then have the choice between:

• Receive a monthly pension.
• Reclaim your contributed capital: between 25% and 100%, depending on the regulations.
• Or a combination: a partial monthly annuity alongside a portion of your capital.

Please be aware that this decision is final and requires careful planning. In the worst-case scenario, this process can take up to two years, depending on the health insurance fund.

How do I withdraw my 3rd pillar (private pension) savings?

Private pension provision, the third pillar, is based on individual savings (through a bank or insurance company). You can withdraw your savings five years before or after the statutory retirement age. The lump sum is usually paid out in a single instalment, but a pension may also be available, depending on the terms of the contract. Here too, the request must be made to the managing body.

In short, there are plenty of ways to easily claim your AHV contributions. You might think that opening a bank account in Switzerland is necessary to receive them. But think again: innovative solutions such as b-sharpe allow you, in just a few clicks and at minimal cost, to obtain a Swiss IBAN, receive your payments into it and easily convert your CHF into EUR at a competitive exchange rate.

The Swiss system is not set in stone: in response to an ageing population, regular reforms are introduced to adapt its rules and funding.

• The retirement age for women is gradually being brought into line with that of men, at 65, by 2028.
• The VAT rate earmarked for the AVS is also set to rise: in 2024, it increased from 7.7% to 8.1%, and could rise by a further 0.7 percentage points in 2026. The stated aim is to maintain the financial stability of the first pillar.

But rest assured: these changes do not undermine the system’s appeal. Whilst the cost of living in Switzerland is high, so are wages – on average 2.5 times higher than in France. As a result, your contributions will provide you with a solid pension, well above the European average.

In practice, employees and the self-employed pay around 8% of their gross salary into the AVS. Consequently, the amount of your pension will depend on your average income. But bear in mind: your contributions to the first pillar represent only part of your total contributions. It is the combination of the three pillars that will determine the level of your pension.

Factors affecting the amount of the pension

Several factors affect the final amount of your pension:

• Allowances: granted to parents with dependent children or to carers.
  
• Gaps in contributions: each missing year reduces the amount of the pension. This is particularly true for cross-border workers who have only spent part of their working life in Switzerland.
  
• Family circumstances: married couples are subject to a joint ceiling, which is often lower than the sum of two individual pensions.

In short: your career, your family situation and your pension choices will directly affect your entitlements. To maximise your pension, we recommend that you adopt a clear personal strategy when making your pension choices.