How is my pension in Switzerland calculated?

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The amount of the pension depends on the contributions to the 1st and 2nd pillars, as well as the years of contributions.

How much pension will I receive from the 1st pillar?

The maximum amount of the pension from the 1st pillar is CHF 2,390.

However, this maximum amount is only paid out if you have paid contributions for 44 years and had an average income of CHF 86,040 (calculated on average over 44 years).

As you can imagine, these conditions apply to very few people.

Why is it so difficult to receive the maximum pension amount from the 1st pillar?

Problem No. 1: High average income required

In order to receive the maximum pension from the 1st pillar, the average income over these 44 years must be CHF 86,040.

After the apprenticeship, most people receive an entry-level salary of around CHF 50,000 per year and the salary then (hopefully) increases over the years.

So to compensate for the low salary in the early years, you have to make big salary increases or salary jumps very quickly. As everyone knows, this is unfortunately very often not the case in reality.

Problem No. 2: Contribution years

In order to receive the maximum pension from the 1st pillar, you must not miss any years of contributions. Otherwise, so-called contribution gaps will occur.

For each missing contribution year, 2.27% is deducted from the pension from the 1st pillar.

How can I close the AHV gap? / Can I pay AHV contributions in arrears?

Retroactive payments to close the AHV contribution gaps are possible for up to 5 years.

You can also have your youth years taken into account to close the AHV gap. How?

Since everyone is only fully liable for AHV contributions from the age of 21, the years 18, 19 and 20 count as youth years.

You can count all the years in which you worked during this time (e.g. apprenticeship) and thus had an AHV-liable salary.

So if you were abroad for 8 years and this resulted in gaps in your AHV, you can pay in these 5 years retroactively, plus have 3 youth years credited.

If you were away for 10 years, you can still only pay in/credit a maximum of 8 years retroactively.

Is my AHV pension lower if I moved to Switzerland from abroad?

That depends on the age at which you moved to Switzerland.

Many foreigners who will retire in the next 5 years will unfortunately receive a massively lower pension than Swiss citizens. Why is that?

The calculation is simple. AHV is compulsory from the age of 21, and from then on the 44 years count. If you moved to Switzerland at the age of 30, you will miss out on 9 years of contributions.

This means that 9 times 2.27% (deduction per missing contribution year) will be deducted.

How is the BVG calculated?

All employees with an annual salary subject to AHV contributions that exceeds CHF 21,510 (as of 2021) are required to contribute to the compulsory occupational benefit scheme (BVG).

The employer is responsible for the BVG insurance cover. The employer contributes at least 50% of the BVG contributions.

Self-employed persons are exempt from the BVG obligation. They pay into the BVG voluntarily.

The conversion rate of the compulsorily insured salary (CHF 21,510 to CHF 86,040) is currently 6.8%. This means that for every CHF 100,000 of retirement capital saved, CHF 6,800 is paid out per year.

There is no fixed conversion rate for salaries above CHF 86,040 (maximum eligible BVG annual salary) and this has been falling steadily for years.

Whereas in 2002 an employee with an annual salary of CHF 120,000 could expect a pension (from AHV and pension fund) of CHF 75,000, today it is just under CHF 60,000.

The pension has thus shrunk by a whole 20% in just 14 years.

If the Corona crisis continues to drag on as it has so far, the money saved, which has already been far too scarce for years, will no longer be sufficient.

The result: the income gap will become even larger.

This could lead to politicians being forced to continue to rapidly lower the conversion rates and to our pensions being several thousand francs lower per year than planned.

Moved to Switzerland late? Unsure how much your pension will be? We offer you tips on how to optimise your pension so that you don’t miss out on money in old age.

Making up lost ground – a call for holistic reform

It is possible to reap these benefits without taking undue risks or making large leaps of faith.

For all it requires is a willingness to learn from the world’s best pension markets and to take action in the following two areas:

1. Swiss pension funds should strengthen their asset management practices.

Swiss second pillar pension funds should shift their investments to more cost-efficient implementation styles, gradually taking on more risks.

They should avoid costly investment vehicles such as fund-of-funds structures and explore ways to manage more of their assets internally.

Over time, they will likely have no choice but to increase their exposure to riskier asset classes.

However, to effectively monitor such investments, they should strengthen their investment and risk management capabilities.

Swiss funds are often thinly staffed and overly dependent on external managers and advisors, unlike their more sophisticated foreign peers.

2. supervisors should remove outdated constraints while promoting accountability for performance.

Regulators should modernise investment rules for the Swiss second pillar pension system.

The existing rules define the permitted investment categories and set limits on investment in each of these categories.

This is not in line with international best practices and risks creating negative incentives for pension fund decision-makers.

The performance of each fund should also be more transparent and easier to compare. The accountability of decision-makers would be increased and improve overall results

Moved to Switzerland late? Unsure how much your pension will be? We offer you tips on how to optimise your pension so that you don’t miss out on money in old age.

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