Switzerland's rise in early retirement calls for a benefitial pension scheme

Switzerland’s pension scheme is built around a system of three “insurance pillars”. Each of these pillars aims to ensure individuals’ lifestyle after retirement, and to maintain the standard of living for their dependants in the event of disability or death. While Switzerland has one of the highest employment rates of older individuals among the industrialised nations, it has experienced an upward trend in early retirement in the last decade. However, Switzerland’s public policy does not promote early retirement, and there are no added benefits in terms of financial incentives for early retirees.

The First Pillar: Basic old-age insurance

The first pillar consists of the state-run basic old-age insurance. This insurance scheme is obligatory for all employees, self-employed, and unemployed individuals over the age of 20. It is referred to as AHV- Alters und Hinterlassenversicherung. Contributions are directly debited from salaries. Men over the age of 65, and women above 64 are entitled to draw a pension if they have contributed towards it for at least one year. The pension amount is calculated on the basis of the relative average income and the number of years one has contributed towards it.

For those opting for early retirement, the pension amount is reduced by between 3.4% and 6.8% for each year of early withdrawal. To be eligible for retirement, you must be over the age of 55 and have an annual income of over Sfr 100,000. Furthermore, you must have lived in Switzerland for at least 180 days a year.  If on the other hand, a pension is drawn within any period up to five years after the retirement age, the amount can be expected to increase by over 5.2% or more per year.

For international people, if you are hailing from a country that has a bilateral pension agreement with Switzerland, you are entitled to your Swiss pension. In this situation, pension contributions are non-refundable on leaving Switzerland and are non-transferrable to another pension scheme. If your country of residence is not part of the aforementioned pension agreement, your contributions to the basic scheme can be refunded on leaving Switzerland. For those who are moving to Switzerland temporarily, you may be exempted from contributing to the basic scheme. It is worth noting that like most Western European countries, Switzerland faces a rising gap between total contributions and payouts. Therefore, the basic pension scheme should not be solely relied on for retirement income.

The Second Pillar: Company pension funds

The second pillar includes an occupational benefit plan, or Berufliche Vorsorge. Company pension funds are the basis of this. The second pillar includes the basic pension scheme, and combined, the two pillars intend to cover 60% of a person’s final salary. All employees with an annual income over Sfr 19,350 are obliged to pay contributions to the scheme. The insurance scheme can be run by a company pension, state or private fund. All those are entitled to a full pension of reglar payments into the fund have been made, that is, for employed persons only.

The Third Pillar: Private pension insurance

The third pillar of the Swiss pension scheme is individual occupational insurance. It subsidizes private pension savings by allowing tax breaks. This implies that contributions are deducted from taxable income and only taxed at the time of payment. Interest on contributions is further exempt from taxation. The amount of pension paid is dependent on the chosen type of policy. Note be taken that this type of insurance subsidy is only intended for gainfully employed persons who are domiciled and taxed in Switzerland. 

All in all, the three pillars of the Swiss pension scheme intend to provide security and peace of mind after a lifetime of hard work.

[Expatica, 2008]