Everything you need to know about the Swiss three-pillar system for cross-border workers: Social security

Introduction

As a cross-border worker employed in Switzerland, you may be wondering about the pension system and have probably heard of the 3-pillar system. This unique system, composed of three separate pillars, provides comprehensive coverage for old-age, disability, and survivors’ benefits. Each pillar plays a crucial role in building your retirement and contributes to your future social security. This comprehensive guide will help you understand in detail the ins and outs of each pillar, enabling you to make informed decisions for your future.

Understanding the Three Pillars of the Swiss Pension System

1st Pillar: State Pension (AVS/AI/APG)

The first pillar is the foundation of the Swiss pension system. Mandatory for all residents and cross-border workers, it is funded by salary and employer contributions, supplemented by public subsidies. Although modest, first-pillar benefits ensure a subsistence level for all retirees.

For cross-border workers:

• Contributions are deducted from your Swiss salary. The amount depends on your income. You will find the details on your pay slip.
• Benefits:
  • AVS pension: from age 65 for men and 64 for women.

• Disability pensions in the event of incapacity to work.

• Survivors’ pensions in the event of death.

2nd Pillar: Occupational Pension (LPP)

The second pillar supplements the state pension and is mandatory for most employees in Switzerland, including cross-border workers, as soon as their annual salary exceeds CHF 22,050. Funded by salary and employer contributions, it helps maintain a higher standard of living in retirement.

Contribution Requirements:

• Minimum Income: Your annual salary must exceed CHF 22,050.
• Minimum Age: Contributions for old-age provision begin at age 25.

As a cross-border worker, you have two options:

• Your employer’s Swiss pension fund: Automatic affiliation if your employer provides one.
• Freestanding pension institution (ILP): Possible choice if you are not affiliated with a company pension fund.

2nd Pillar Benefits:

• LPP pension: from age 65 for men and 64 for women.
• Benefits in the event of disability.
• Benefits in the event of death.

Use of the 2nd Pillar Capital:

As a cross-border worker, you can withdraw your second-pillar capital to make a down payment on a property purchase. Once you retire, you have the possibility to convert your retirement capital from Swiss francs to euros, thereby simplifying the management of your finances.

3rd Pillar: Individual Pension

Optional, the third pillar allows you to build up additional savings for retirement, disability, or death. Contributions paid in are deductible from taxable income.

Two types of 3rd Pillar exist:

• 3rd Pillar a (restricted): Contributions paid into a savings account locked until retirement.
• 3rd Pillar b (flexible): More freedom in investment choices, but contributions are not deductible from taxable income.

Advantages of the 3rd Pillar:

• Supplement the pensions from the 1st and 2nd pillars.
• Finance specific projects (property purchase, etc.).
• Benefit from tax advantages.

Advantages of the Swiss 3-Pillar System

• Solidarity: Between generations and between high and low incomes.
• Stability: A system financed by contributions and subsidies, ensuring its sustainability.
• Flexibility: Ability to contribute more to the 3rd pillar to improve your standard of living in retirement.

Conclusion

The 3-pillar system is a key element of social security in Switzerland. Although complex, understanding it is essential for cross-border workers to properly prepare for retirement and guard against life’s uncertainties.