Swiss pension: how the three pillars work?

Switzerland’s reputation for financial stability extends to its robust and comprehensive pension system. Designed to ensure financial security in old age, disability and death, this system forms a central pillar of the country’s social and economic model. 

The Swiss pension system is built on a three-pillar principle combining state, occupational and private pension provision. Each pillar has a distinct purpose and legal framework, yet they work together to help individuals maintain their standard of living after leaving the workforce. This guide clarifies each layer, integrates examples, defines AHV, IV, BVG and LPP, and answers common questions directly within each section.

Pillar 1 is the base layer of retirement security in Switzerland. It is run by the state and administered by cantonal compensation offices, rather than private funds. It covers two social insurances: AHV/AVS (Old-Age & Survivors Insurance) and IV/AI (Disability Insurance).

Its purpose is to ensure that everyone receives a minimum income in retirement or disability, even if lifetime earnings were modest. Unlike Pillar 2 or 3, Pillar 1 is not an individual savings account, it follows a pay-as-you-go model, where current workers finance current retirees through salary deductions.

Who pays into Pillar 1?

Contributions are deducted automatically from salaries for employees, shared about 10.6% total split 50/50 between employer and worker. Self-employed people contribute the full amount themselves, at rates that scale with income and even non-working residents must pay a minimum annual contribution to avoid pension gaps.

How much can you receive?

A full pension requires 44 years of contributions, and the payout depends on your average insured salary. Today, the typical range is:

Minimum monthly pension ≈ CHF 1’225
Maximum monthly pension ≈ CHF 2’450

Simple example:  A worker earning CHF ~80'000/year through their career may receive CHF 1’800–2’300/month, enough for basic needs but not enough to maintain their lifestyle alone.

Quick FAQ

1. Do you need to do anything yourself? Yes, regularly check your AHV history to avoid gaps.
2. Do foreigners get AHV if they leave Switzerland? Yes, payments are made abroad to most countries.
3. How to check my contributions? Request an "IK-Auszug" statement.
4. What if I have gaps? You can pay missing years retrospectively (limited time window).

➡️ Pillar 1 ensures a minimum income. The real retirement lifestyle depends on Pillars 2 and 3.

Pillar 2 is the pension linked to your employment. Unlike Pillar 1, which is state-run and redistributive, Pillar 2 is capital saved in your name, invested over your working life and later paid out as a lump sum, an annuity or a mix of both. It operates under the law BVG/LPP, which sets minimum standards, while actual benefits depend on your employer’s pension plan.

Where does the money come from?

Employees earning above CHF 22’050/year are automatically insured. Contributions are deducted from salary and funded jointly by employer and employee, with the employer paying at least 50%, and in some sectors (tech, finance, public institutions) often much more, sometimes 1.5–3× the employee contribution.

As you age, deductions increase to accelerate savings closer to retirement. A typical range looks like this (combined employee + employer share, varying by fund):

• under 35: ~7–10% of insured salary
• 35–44: ~10–15%
• 45–54: ~15–20%
• 55+: ~18–25%

Who manages Pillar 2?

The state does not manage the money. Your employer chooses a pension fund, for example Swiss Life, AXA, Liberty, Nest, Zurich, VZ, or larger public collective funds such as BVK, CPPE, CPEG, PKZH. Employees normally cannot select their pension fund, but companies can switch providers. Some employers also allow voluntary buy-ins, useful for filling gaps and reducing taxes.

What about self-employed people?

They are not automatically insured under Pillar 2 and must join voluntarily if they want coverage. Many instead rely more heavily on Pillar 3a and 3b investments to build retirement wealth.

How much can Pillar 2 provide?

Your pension depends entirely on how much capital you accumulate and the conversion rate applied at retirement.

Example: CHF 300’000 accumulated × 6% = CHF 18’000/year → CHF 1’500/month

Typical outcomes based on career paths with approximative BVG monthly pension:

• Part-time or low salary career CHF 800–1’500
• Standard full career CHF 1’500–2’500
• High salary + generous employer CHF 2’500–4’000+

For people who work 40+ years in Switzerland with high contributions and a solid pension fund.
➡️ Pillar 1 + 2 = 50–65% of final salary

For most newcomers, expats or people with career breaks:
 ➡️ Pillar 1 + 2 = 35–50% of final salary

This gap is exactly why Pillar 3 exists.

Quick FAQ

1. Can I withdraw Pillar 2 early? Yes. For home purchase, starting a business, disability or leaving Switzerland (full withdrawal outside EU, partial inside EU).
2. Can I contribute more? Yes via Pension Buy-Ins to fill contribution gaps and reduce taxes.
3. Do foreigners keep BVG after leaving Switzerland? Yes, it's paid as pension abroad or can be withdrawn depending on the destination.
4. Can I move my vested benefits? Yes to Vested benefit foundations, etc.

➡️ Pillar 2 builds your main retirement capital. The stronger your employer plan & salary, the more you earn later.

Pillar 3 is the voluntary component of the Swiss system. Unlike Pillar 1 (state-run) and Pillar 2 (linked to your employer), Pillar 3 is personal and self-managed, meaning you must take action yourself. Its purpose is simple:

➡️ build additional capital to maintain your lifestyle in retirement
➡️ reduce taxes (if using Pillar 3a)
➡️ bridge the gap left by Pillars 1 & 2

Pillar 3 is split into two categories:

Pillar 3a is designed specifically for long-term retirement planning. Contributions are tax-deductible every year, which means you pay less tax now while building future capital. The money is blocked until retirement, except for specific situations such as buying or renovating a primary residence, becoming self-employed, leaving Switzerland permanently, disability or making a buy-in to Pillar 2. You can decide whether your contributions stay in a cash savings account or are invested in portfolios and funds, which historically perform better over time.

There is an annual deposit limit: employees with a Pillar 2 fund may contribute up to CHF 7’258/year, while the self-employed without a Pillar 2 can contribute up to 20% of income, capped at CHF 36’288/year (as per 2026).
A simple example: contributing the maximum CHF 7’056 with a 22% tax rate saves around CHF 1’552 in taxes each year.

In addition, from 2026 onwards, it's possible to make retroactive buy-in contributions to close gaps from previous years (starting with 2025) under new rules.

Withdrawals are taxed at a reduced rate, separate from regular income tax, which usually makes 3a one of the most tax-efficient saving tools available.

What can this look like over time?
With regular maximum contributions and moderate returns, many people build

• CHF 80–120k after 10 years (CHF 360–540/monthly income)
• CHF 150–250k after 20 years (CHF 675–1’125/month income)
• CHF 230–320k after 30 years (CHF 1’035–1’440/month income)

depending on payout strategy and market conditions. It's designed for long-term retirement preparation.

For more information, you can visit this page about 3a Easy.

Pillar 3b refers to all private savings and investments that are not bound by retirement regulations. This includes securities portfolios (ETFs, stocks, investment funds), traditional savings accounts, real estate holdings, and optional life-insurance-based products. In practice, it functions like normal investing — with no tax deduction, no annual deposit limit and no withdrawal restrictions, unlike 3a.

Because it offers complete freedom, 3b is ideal for building additional wealth once your 3a is maxed out, preparing for early retirement or financial independence, or financing goals outside retirement like property purchase, children’s education, or liquidity reserves.

In short:
Pillar 3a = tax efficiency for retirement.
Pillar 3b = full freedom for long-term wealth.

Quick FAQ

• Can I hold multiple 3a accounts? Yes, useful for staggered withdrawals to reduce tax.
• Can I invest my 3a in funds? Yes, and this historically produces better long-term results than keeping it in cash.
• Can expats contribute? Yes, as long as you have Swiss taxable income.
• Does 3b reduce taxes? Normally no, except through specific insurance products.

As Switzerland moves further into 2026, demographic pressure and longer life expectancy are placing growing strain on the pension system, particularly on Pillar 1. While the three-pillar framework remains solid, political debate around AHV financing, retirement age alignment and contribution levels highlights an important reality: future pensions are likely to replace a smaller share of final income than in the past. At the same time, occupational pension funds continue to face lower conversion rates, meaning that the same retirement capital now generates less guaranteed income than it did a decade ago. For individuals with international careers, part-time work patterns or career breaks, this effect can be even more pronounced. In this environment, proactive planning becomes essential. Regularly reviewing your pension situation, understanding your exposure across all three pillars and strengthening Pillar 3 through disciplined contributions and long-term investing are increasingly decisive steps in maintaining financial independence and lifestyle flexibility in retirement.

The content in this article is provided for educational purposes only. It does not constitute investment advice, financial recommendations, or promotional material.