This post (which I hope a mod may consider making sticky) is to summarize key points relating to Swiss pensions for the employed, particularly British expats. Topics covered:
- basic concepts, including the “three pillars” of the Swiss pension system
- the second pillar, ie the employers pension scheme
- obligatory and non obligatory contributions
- using your pension before retirement
- transferring your UK pension(s) to your second pillar
- leaving Switzerland, taking your pension with you
Self employed have somewhat different rules that aren't within the scope of this post. Retirement in Switzerland is also not covered.
I'm not a pensions expert, but am a chartered accountant who has been trustee of several employers pension schemes and has researched the topic fairly extensively for personal reasons too. Pensions are complicated and everyone is different so you must take professional advice.
I have tried to consolidate and summarize the many previous threads on these topics, and provide links back to the gorey detail, so thanks to all the contributors to those threads.
I also drew heavily upon the excellent Credit Suisse publication https://entry.credit-suisse.ch/csfs/...ndlagen_en.pdf
and I suggest you read this to complement the basic detail.
Please feel free to provide and corrections or enhancements and I'll integrate them. Basic Concepts
The Swiss pension system has three pillars (D: säule, F: piliers).
Pillar 1, (D: AHV, F: AVS) is the compulsory state pension and the contributions are deducted by your employer from your pay. It can provide an individual pension of (currently) upto c26kchf per annum after c.40 years contributions.
Pillar 2, (D: BVG, F: LPP ) is the employers pension scheme and is compulsory for individuals over 24 and earning more than c20kchf. There is a compulsory element (D: obligatorisch, F: obligatoire) covering contribution on incomes between c20kchf and c80kchf. Your employer may very well provide additional cover over and above the compulsory element (eg larger share of costs, higher salary insured etc).
Pillar 3, (D: dritte Säule, F: troisieme pilier) are voluntary additional pensions savings of slightly over c6kchf per annum that are tax deductible and invested tax free.
Pillars 1 and 2 also include certain insurance elements such as life assurance and widow and orphan pensions. A full lifetime of contributions to Pillars 1 and 2 might just give you a 60% pension on salaries upto about 70,000chf per year. Your employer should essentially “take care” of making sure you are a paid up member of both Pillars 1 and 2.
Pillar 3 is your responsibility to organise. There are a variety of products you can chose to invest this money in from straight savings accounts via with-profits life assurance policies to 50% equity based portfolios. 3rd Pillar Pension Fund Second Pillar, Employers Pension Schemes
Employers are obliged to make a second pillar available that provides at least the minimum legal cover (ie cost to be shared 50%, minimum % of salary depending on age bands, a minimum annual return on investment). Defined benefit/final salary schemes are possible but very rare, virtually all are defined contribution schemes with a capital protection/minimum return element.
Beyond this legal minimum the employer can chose to offer all or selected categories of employee (eg management, or people over 150kchf income, but not explicitly “Mr/s X, Y and Z”) additional benefits. “Market” benefits for managers are typically quite significantly better than the statutory minimum, particularly as regards salary limits and assurances (eg death in service).
Most small or medium companies largely outsource the management, administration and quite a lot of the risk of their pension scheme to one of the large institutional providers such as Swisscanto (owned by the cantonal banks). Although this is reassuring as to corporate governance and solvency, it does not mean that all the benefits are alike as each company can set its own benefits levels.
Larger companies will often administer their own scheme, and are paying contributions into the scheme which then invests assets so it can pay benefits, including the annual guaranteed return. Not all funds have the same solvency profile, and you should check or seek advice before paying additional voluntary monies (eg extra contributions or carry over from previous companies) into a poorly funded scheme. This goes particularly these days.
See Pension Second Pillar contributions
Obligatory and Non-Obligatory and Additional Contributions
Many expats arrive in Switerland after age 24 and many earn significantly more than the 80kchf obligatory limit for the second pillar. Furthermore most employers have a salary ceiling far above the 80k obligatory threshold. For once, this means being a foreigner is Switzerland has a perk since you are allowed to make tax deductible contributions as if you had been earning your current salary since you were 24. A large proportion of your contributions will be over-obligatory (D: Ueber-obligatorisch, F: sur-obligatoire) and you can lay your hands on them at very low tax rates when you leave Switzerland. Additionally the Swiss system allows you to use your pension pot in a number of ways well before you retire so the money isn't locked away completely.
If your employers second pillar is healthy (see Second Pillar, Employers Pension Schemes) and you have the spare cash you should give serious thought to this tax planning opportunity.
Transferring your UK Pension to your Second Pillar
The introduction of bilateral agreements between Switzerland and the EU mean that in theory transfers of your UK Pension pot(s) into your Swiss second pillar are possible. Poor legal drafting on the Swiss side and the British nanny state make this a bit more complex in practise, however it is not impossible.
Before starting to jump through the hoops, think carefully about doing this especially if you have a UK defined benefit pension as the transfer value is unlikely to be worth as much as a deferred pension. Also the transfer “eats up” part of your Additional Contribution possibility without getting the tax deduction. The most logical reason I have heard to want to do the transfer is to get enough money into the second pillar to be useful in a house purchase (see Accessing While in Switzerland). See Pension - Moving my UK pension to Switzerland
So you still want to do it? An UK pension fund will only transfer pension benefits directly to an overseas scheme if that scheme qualifies under UK law as a “QROPS” scheme. These schemes need to comply with a number of fairly onerous reporting requirements towards UK HMRC, and as a result only major international employers' schemes tend to go along with it. A list of QROPS schemes is available at http://www.hmrc.gov.uk/PENSIONSCHEMES/qrops-list.htm
Swisscanto are not QROPs and have no plans to become so.
If your employers fund is not a QROP and you are talking about a transfer large enough to make the fees worthwhile then there are several providers who can offer “transit” pension funds that are QROPs approved. Be aware however these providers are interested in building long term relationships not being “ports of convenience”. Some of these providers are referred to in this thread Freizuegigkeitskonto [vested benefit account]
Also see Moving a pension to Switzerland
Accessing your Swiss Pension before Retirement - While in Switzerland
Another nice thing about Swiss pensions versus the UK pension is that the money is not “untouchable” until you retire. It is possible to access the funds directly by withdrawing the money for certain permitted uses, including buying or renovating you main home and starting up a business. If you do this you will pay a withholding tax on the amount extracted and will have to pay the withdrawal back into the pot before you can make further additional contributions.
Unfortunately you cant buy a home abroad with the pot, although there may be work-arounds if you have a word with a friendly bank manager.
It is also possible to access the funds indirectly by using them as security (via a pledge) against your mortgage loan, and this is generally much more tax efficient than direct use since there is no withholding tax and the capital will continue to grow tax free. Some lenders will even allow the deposit to be paid indirectly. Accessing your Swiss Pension before Retirement - On leaving Switzerland
If you leave Switzerland permanently for a non EU country you can be paid your whole pension pot minus a relatively modest withholding tax which varies depending on your canton of residence but is almost always much lower than the tax you would have paid on the income had it not been paid into your pension pot.
If you leave Switzerland for an EU country then the same goes for the over-obligatory contributions ie you can have them paid out. However, the obligatory contributions must stay in a vested benefits account until you reach retirement age. In theory it is possible to have the amount transferred to another EU pension, however the law is not very well drafted (specifically the Pensions law only allows transfers to Swiss and Liechenstein funds, but the law that enacts the bilateral agreement with the EU allows free movement!) and as at the time of writing I am not aware that anyone has managed to do this in practise.
If you plan to leave your pension pot untouched for a while once you leave Switzerland and you live in a cheap tax commune/canton you should consider carefully where to place it. Once you leave Switzerland you will be taxed based on where the vested benefit account is located, in the case of UBS and the Cantonal Banks, this is the not so cheap Basel. Again read thread Freizuegigkeitskonto [vested benefit account]
See also Taking money out of Switzerland
Hope this helps