Expat in Switzerland: All you need to know about 3rd pillar and pension system

Moving to a new country can be fascinating, but it can also be fraught with uncertainty. In Switzerland, expatriates are often faced with many retirement issues. 
This article provides an initial overview to help expats with these important challenges.

One of the hallmarks of the Swiss social security system is its robust three-pillar structure, designed to ensure a comfortable standard of living both during working life and old age. 

The first pillar, known as the AHV (or OASI in English), provides a basic retirement income in the form of an annuity. As the first pillar use a 'distributive' system, your current contributions are used to fund current pensions. For this reason, you will not accumulate any capital in the first pillar. The AHV is mandatory for everyone living or working in Switzerland. 

The second pillar, or occupational pension plan (BVG), consists of mandatory pension funds for working people and, like the first pillar, provides coverage in the event of disability, death and retirement. Unlike the first pillar, the second pillar uses a 'capitalisation' system, meaning that you will accumulate a capital during your working life, which is converted into a pension when you retire. This accumulated capital is yours and will follow you whenever you change jobs.

In both, first and second pillars, those who have made full contributions will receive around 60% of their last salary. 

Finally, the 3rd pillar offers an individual saving option through Pillars 3a and 3b, providing additional financial security to cover any gaps in the events of disability, death or retirement. Pillar 3a also gives you an important tax advantage.

Thinking about the future is essential to think about it well in advance. While the first and second pillars cover your basic financial needs, it is advisable to aim for a retirement income of at least 80% of your last salary. 

Expats, who generally come to Switzerland late in their careers and therefore have not paid full contributions from the beginning, may find it advantageous to use the 3rd pillar to fill any pension gaps.

However, the first step is to understand your current situation through a pension analysis, which will show you what you can expect from the 1st and 2nd pillars. This will enable you to conclude a contract for a third pillar to cover any possible gaps.

The third pillar is essential to cover your income in case of disability and to protect your family in case of death. Think about what would happen if, at some point, your family lose your income. Could they continue to pay the mortgage of your home? Could they maintain the same standard of living? Could you still pay for your children's education?

These are the questions that need to be answered in order to plan your retirement properly. With a third pillar, you can cover all these events and plan your future with the peace of mind of someone who knows is covered in the right way.