What is the pension fund?
The pension fund is the occupational pension in the Swiss pension system and is also called BVG. Together with accident insurance, it forms the second pillar. The pension fund, together with the state pension (first pillar) and private pension (third pillar), is intended to ensure that the standard of living is maintained after retirement.
For whom is the pension fund mandatory?
In principle, all employees must insure themselves against the risks of disability and death, i.e. pay so-called risk contributions, from January 1 following their 17th birthday. From January 1 following the 24th birthday, savings contributions must also be paid, which are saved as retirement capital. There is a so-called entry threshold at which the obligation begins. Currently, this threshold is set at an annual salary of 21,510 (as of 2022).
Among others, employees are exempt from the insurance obligation:
BVG for self-employed persons
Self-employed persons are not required by law to join a pension fund. Self-employed persons are considered to be those who settle accounts directly with clients as sole proprietors, general or limited partners. However, they can join an insurance fund voluntarily at any time. Self-employed persons without employees have the option of joining the pension fund of the professional or trade association, if one exists, or otherwise the Stiftung Auffangeinrichtung BVG. If employees subject to BVG are employed, the company must, like other companies, join a pension fund entered in the register for occupational benefits. The self-employed person is still free to decide whether he or she also wishes to take out insurance. Alternatively, there is also the possibility of building up retirement provision privately, via the 3rd pillar. Self-employed persons without BVG can pay up to twenty percent of their income, up to a maximum of CHF 34,416 per year, into the 3rd pillar and deduct it from their taxes.
Insured salary and coordination deduction
The insured salary corresponds to the annual salary minus the coordination deduction. This currently (2022) amounts to CHF 25,095 and coordinates the retirement pensions of the first pillar (AHV) and the second pillar (BVG). The deduction ensures that the pension fund only levies contributions on those parts of the salary for which the 1st pillar does not already pay benefits. This prevents salary components of the AHV pension from being insured twice.
The compulsory insurable salary is at least CHF 21,510 and is currently limited to CHF 86,040, but most pension funds also offer the option of insuring higher salaries in the so-called extra-mandatory area.
On the one hand, the insured salary serves as the basis for calculating the contribution amount. On the other hand, the benefits for the risks of disability and death are also calculated on this basis.
In addition, it is also possible to insure the annual salary without a coordination deduction. Although this increases the contributions, the benefits in the event of disability or death and the retirement assets are also higher.
By whom and how are contributions paid?
The employer is responsible for joining a pension fund. The employer pays the employee's BVG contributions as well as its own share. For this purpose, contributions are deducted directly from the employee's salary each month. At least 50% of the premiums must be paid by the employer. There is also the option for companies to pay more than half, for example 70 or even 100% of the annual contributions.
What is the composition of the pension fund contributions?
Part of the BVG contributions are the risk contributions. These cover the risks of disability and death and must be paid from the beginning of the insurance obligation. The principle is similar to the premium for basic health insurance: everyone pays in equally on a solidarity basis in order to provide benefits to those who need them.
From January 1 after the 24th birthday, savings contributions, also known as retirement benefits, are also paid. All insured persons thus finance their personal retirement assets together with the employer, which is similar to a savings account. The amount of the contribution is prescribed by law. It is calculated on the basis of the insured salary and is dependent on age:
In addition to these contributions, administrative costs must also be paid. These cover the administration, sales and management costs of the pension funds.
In addition, most employees have the option of buying into the pension fund. The prerequisite for this is that there is a contribution gap. Since the purchase is tax deductible, you can also save taxes at the same time.
What benefits are insured under the BVG?
The mandatory benefits cover the following, among others:
The pension fund pays an old-age pension to women from the age of 64 and men from the age of 65 who have paid contributions. The amount of this pension depends on the contributions paid during the period of employment. To calculate the annual pension, the accumulated retirement assets are multiplied by the conversion rate. In 2022, this rate is set by law at 6.0% for women and 5.7% for men.
Disability and death
In addition to the retirement pension, the risk contributions are also used to insure risk benefits. These include a pension to surviving dependents in the event of the death of the insured person. Furthermore, a disability pension is usually paid to the insured person in the event of disability.