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The main points at a glance

  • In pillar 2, employees are insured against the risks of disability and death from the age of 17 – from the age of 24, they also save for their retirement.
  • The occupational pension plan insures salary amounts above the annual income threshold of CHF 22,050 (as of 2023).
  • You and your employer each pay half of your pillar 2 contributions.
  • In pillar 2, each person is saving for themselves alone.
  • A funding ratio of 100 percent or more indicates a financially sound pension fund.
  • Returns on your pension fund assets depend on the pension fund’s investment strategy and developments on the financial markets

Who pays into an occupational pension scheme and how it works

Unlike the pay-as-you-go system of the AHV (pillar 1), the occupational pension scheme (pillar 2) is a fully-funded system. The amounts for each person are invested on the capital market and paid out when they reach retirement age. This means that each person is saving for themselves. In an occupational pension scheme, any salary above the income threshold of CHF 22,050 (as of 2023) is insured. The insured salary is divided into a mandatory portion with a statutory conversion rate of currently 6.8 percent and a non-mandatory portion, which can have a lower conversion rate. This rate determines the pension received. For example, with assets of CHF 100,000, you would receive an annual pension of CHF 6,800. Pillar 2 is mandatory for employees aged 25 or over. The contributions are shared between the employer and employee.

The ABCs of retirement planning

Want to know more about pensions?

Our free publication “The ABCs of retirement planning” explains everything about the 3-pillar system and is full of useful tips for your own retirement provision.

What the pension fund does with your contributions

A pension fund manages an account for you with your contributions. It invests the funds it receives from all of its members into equities, bonds, and alternative forms of investment. Alternative investments like raw materials, real estate or hedge funds are generally less susceptible to changes in interest rates and on the stock markets, making them suitable for spreading risk.

The return on your pension fund capital thus depends on the investment strategy and developments on the financial markets. The success of these investments will also determine whether the fund can pay a higher rate of interest on your assets than the statutory minimum rate (currently 1 percent) for a given year. In 2021, pension funds achieved an average return of 8.06 percent for the full year and could pay interest on assets well above the statutory minimum rate. In 2018, the return was negative at –3.28 percent and again in the first four months of 2022 at –4.72 percent.

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Indicators that a pension fund is financially sound

One important indicator is the coverage ratio, which is shown on your pension fund statement. This shows the relationship between assets and liabilities. If the funding ratio is below 100 percent, it means that the pension fund does not have sufficient assets to cover its current and future liabilities. Consistently poor investment performance can quickly lead to a lower funding ratio. A large number of retirees also means high, fixed liabilities, which can also have a negative impact on the funding ratio.

How to read your pension fund statement

Pension fund members receive a pension fund statement once a year. This will show:

  • Your total retirement savings to date and the benefits you can expect.
  • Your options for making voluntary contributions or for withdrawing capital in order to buy your own home.
  • Information on how the pension fund is financed and administration costs. 
  • You can find information on the funding ratio on your pension fund statement or obtain the information directly from your pension fund.

A detailed guide to your pension fund statement can be found in our article: “Your pension fund (PF) statement explained in 10 steps.”

The 10 key questions and answers about occupational pensions