The Swiss three-pillar system provides a balanced pension system, with the 1st pillar the mandatory federal pension provision (AHV), the 2nd pillar an employment-oriented pension provision, and the 3rd pillar a voluntary savings and investment program that is divided into the tax-advantaged pillar 3a and the general pillar 3b.
Old-age and survivors' insurance (AHV) is a federally organized insurance that provides a basic income in retirement.
This insurance provides financial support for persons who are no longer or only partially able to work due to disability.
These benefits provide support if pensions and income are insufficient to cover a person's cost of living.
Goal: Cover basic requirements.
The 1st and 2nd pillar cover approximately 60% of a person's latest income.
Occupational provision is tied to employers and serves to uphold the standard of living one is used to in retirement.
The 2nd pillar is a fully funded system that allows retirees to withdraw their assets in the form of a monthly annuity, a lump-sum payment, or a combination of the two.
It covers most of the three components of the Swiss pension system.
Self-employed individuals have the opportunity to voluntarily enrol in an occupational pension fund. Payments from the 2nd pillar become more important as income increases.
Goal: Maintain the usual standard of living.
The 1st and 2nd pillar cover approximately 60% of a person's latest income.
Pillar 3a (restricted provision) is a voluntary plan that complements one's pension in retirement. Access to 3a savings is subject to certain conditions.
Pillar 3b (unrestricted provision) is not tied to retirement and can be used for medium or long-term savings goals. Contributions are not subject to any annual maximum amounts.
Pillar 3b contains all voluntary kinds of savings that are not already included in the other pillars of the Swiss pension provision system.
Pension solutions in the 3rd pillar can include savings accounts, bonds, equities, investment funds, structured products, or insurance policies. Such solutions are available from banks as well as insurance companies.
Goal: Close the income gaps the other pillars leave and cover additional needs.
The Swiss pension system is basically well established and guarantees broad coverage for the population. Nevertheless, it is confronted with significant challenges, particularly driven by demographic change and economic uncertainties. All three pillars require reforms to ensure their financial stability and guaranteed benefits in the future. This requires politicians to develop viable solutions that uphold the population's prosperity in the long term.
Overall, the Swiss pension system provides a sound basis but needs constant adjustments to live up to the changing requirements of the societal and economic environment.
Today we know that the 1st and 2nd pillars alone no longer suffice to allow people to maintain their standard of living in retirement.
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