Pension system in Switzerland
The Swiss pension system rests on three pillars: the Federal Old-age, Survivors' and Invalidity Insurance (1st pillar), the occupational pension scheme (2nd pillar) and private pension schemes (3rd pillar). The first pillar is a PAYGO system, the second and the third are funded pension plans.
The basic pension insurance is known as Alters-, Hinterlassenen- und Invalidenversicherung (AHV) in German, Assurance vieillesse et survivants (AVS) in French and Assicurazione vecchiaia, superstiti e invalidità (AVS) in Italian.
According to article 112 of the Swiss federal Constitution, the first pillar should cover basic living expenses adequately. It is a PAYGO system, financed by contributions from employees and employers (4.2% of the employee’s income each), from the self-employed (7.8% of their income) and from the people not engaged in paid employment (between 392 and 19600 CHF a year in 2013). The authorities also contribute via direct funding, VAT and the revenues of the tax on gambling clubs. People’s contributions are collected and benefits are distributed by different bodies, some managed by the cantonal or federal authorities, some managed by union of employers, like the Fédération des Entreprises Romandes Genève.
The first pillar provides old age pensions as well as benefits for widowers and orphans.
The ordinary age of retirement is 65 years for men, 64 for women. It can be anticipated or postponed, with financial consequences.
The occupational pension scheme is known as Berufliche Vorsorge in German, Prévoyance professionnelle in French and Previdenza professionale in Italian. In daily life, it is more often referred to as “the second pillar” (German: die Zweite Säule, French: le deuxième pilier, Italian: il secondo pilastro).
According to article 113 of the Swiss federal Constitution, “the occupational pension scheme, together with the Old-age, Survivors' and Invalidity Insurance, enables the insured person to maintain his or her previous lifestyle in an appropriate manner”.
It is a funded pension plan. It is compulsory for employees and is financed by both employees and employers. The sum of the contributions of the employer should be at least equal to the sum of the contributions of his employees.
It is also opened to the self-employed on a voluntary basis. The contributions differ according to the regulations of the institutions providing it. Pension funds are organised as foundations. They can be created by authorities or private corporations for their own personnel, by private companies, like insurance companies, and be opened to any company, or by professional associations or union of employers, like the Fédération des Entreprises Romandes Genève, for their members.
The second pillar offers old age pensions. Some of the pension funds also provide benefits in case of invalidity and benefits to survivors in case of premature death. Under certain conditions, the second pillar can be used before retirement to buy a principal home or to start an independent activity.
The third pillar consists of private pension schemes provided by the private sector. It is optional and financed entirely by the person.
Evolution of the system
The elevation of life expectancy challenges the Swiss pension system. The number of pensioners is increasing and the investment earnings is shrinking. The Federal Council (Swiss government) has put forward a global reform scheme called Prévoyance 2020 in French, encompassing the first and the second pillar. It aims at consolidating the system as well as at making the retirement age more flexible. The Federal council proposes to raise the retirement age for women from 64 to 65 and to raise the employer’s and employee’s contributions, as well as adapting diverse technical parameters. As a result, a person who has accumulated a capital of 500 000 on their second pillar would get a yearly second pillar rent of 30 000 instead of 34000. This reform hasn’t been approved by the parliament yet and, should it be accepted, wouldn’t enter into force before 2020.
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