On May 6th, we kicked off part III of our Success in Switzerland webinar series, an expert-led initiative designed to provide practical advice and support for those living and working in Switzerland. 

In this episode, we explored the intricacies of Switzerland’s tax and pension system, including:

  • The Three Pillar System

  • Challenges in Pension Planning

  • Cross-Border Pension Transfers

  • How Employers Choose Pension Providers

  • Changing Jobs

  • Avoiding Common Mistakes

  • The Swiss Tax System

A big thank you to our special guest speaker, Leonora Domgjoni, seasoned Pension Fund Manager and Team Leader, as well as to our very own Sabrina Jones, Commercial Payroll Lead, and Viki Dowthwaite, Commercial Director.

Interested in joining us for part four? Register your interest here: Housing and the Cost of Living.  Keep reading for a concise breakdown of the evening’s key insights and actionables. 

Switzerland’s Three-Pillar Pension System

The Swiss pension system is a major cornerstone of the nation’s social welfare model, but what does it look like? It’s complex, yes, but it’s structured around three pillars:

  1. State Pension (AHV - Alters und Hinterlassenenversicherung)

    • Mandatory basic pension, funded by employee and employer contributions, supplemented by the state. This covers essential living costs, old age disability and survivor benefits. 

    • The current contribution total is 10.6% of your gross salary, with the employer and employee each paying half. 

    • Pension amounts are based on years of contribution (up to 44 years for a full pension) and average income over those years. 

    • The monthly minimum is CHF 1,260, and the maximum is CHF 2,520 for individuals.

    • For married couples, the combined payout is capped at 150% of the maximum individual pension, currently CHF 3780/month.

  2. Occupational Pension (BVG - Berufliche Vorsorge Gesetz)

    • Mandatory occupational pension for employees earning above CHF 22,680/year from a single employer. Funded by employee and employer contributions, the goal of this is to maintain a pre-retirement lifestyle and supplement the AHV. 

    • Contributions begin from January 1st after the employee turns 24. 

    • Contributions only apply to a portion of your salary (the coordinated salary).

  3. Private Pension (3a and 3b)

    • This pillar is voluntary and includes private savings and investment plans. It offers tax advantages and allows individuals to save for retirement according to their personal goals and preferences. 

    • Pillar 3a – A tax-advantage savings plan. Contributions are tax-deductible up to an annual limit of CHF 7,258. Funds are locked until retirement with a few exceptions, for example, if you’re buying a property or you become self-employed. 

    • Pillar 3b – a more flexible option that provides complete control over how much you want to save. You can also access these funds at any time. However, they aren’t tax-deductible. 

Together, these plans aim to provide sustainable income during retirement. Currently, a range of competing pressures poses a significant challenge to the sustainability of global pension systems, including Switzerland. 

Good to Know: 

  • Pension funds are legally required to pay a minimum interest rate on mandatory contributions (LOB) set by the Swiss government each year. 

  • In 2025, that rate is 1.25%. 

  • Pension fund performance and Board of Trustees decisions determine the actual credit interest. This can vary between funds and mandatory/non-mandatory contributions.

  • Pension funds may pay more than the minimum if their performance allows it.

  • Returns differ across providers. 

Current Challenges

‘In Switzerland, the first pillar struggles with funding because of an ageing population and declining birth rates, making the second and third pillars even more important for ensuring a financially secure retirement. Addressing these challenges will require adjustments in policy, savings habits, and potential changes in system design.’

Alongside demographic pressures, Switzerland is also facing off against lingering inflation issues and poor interest rates on pension returns, a growing concern for both individuals and systems alike. 

  • Inflation: Usually, Switzerland uses the first pillar to combat inflation, but if the rate rises too sharply, the adjustment may not fully compensate. Pillars two and three are more susceptible to risk, as they are invested individually and can lose real value over time if the funds rely on fixed interest or non-inflation-linked assets. 

  • Low Interest Rates: Lower interest rates may result in different vested benefit amounts. This is also linked to the savings and investments you have. Typically, in Switzerland, pension funds have strict rules that determine how they are invested. Some pension funds are invested in government bonds, corporate bonds, or pension funds that are invested in real estate and stocks. 

  • Longer Life Expectancy: Given the rising life expectancy rate, pensions now need to cover longer periods. This means that the contributions need to work harder to regenerate. 

‘When you’re invested in riskier assets like stocks, then you have volatility. When you have less risky investments, then of course you would have less returns and lower interest. Based on the choice of the pension fund board, pension funds at the end of the year give different possibilities for the interest.’

Additional Challenges in Pension Planning:

Divorce and caregiving responsibilities can lead to gaps in pension contributions. In Switzerland, pension assets may be split during divorce proceedings based on court decisions. 

While these gaps can sometimes be repaid, eligibility depends on the legal framework in place at the time.

Pension planning is also complicated by the fragmented and evolving nature of the system. Differences in legal terms, insurance coordination, contribution levels, and benefit structures can make it difficult for individuals to track their entitlements. 

Changing jobs or pension providers often results in different fund structures and benefit amounts, meaning pension planning must be approached on a case-by-case basis.

‘When you’re choosing your job, you have to take a look at your pension fund so that you know which kind of salary components you have in the contract. Saving contributions belong to you as an individual, but risk contributions on the other hand, stay with the pension fund and are used in cases like invalidity or death to provide cover. Not all contributions are yours to keep, so you need to see how your pension is structured.’

How Do Businesses Know Which Pension Provider to Choose?

Our guests shared some tips on what employers should look out for in a dependable pension provider: 

Unique Fit

‘Every employer has their own needs, so the right provider can change based on the structure of the business.’ 

Reputation and Stability 

‘Financial stability is the biggest aspect here. You want to make sure the provider is able to give you a long-term commitment and financial security.’ 

Fees and Charges

‘Sometimes you’ll have pension funds with additional administrative costs, management fees, or even hidden costs. It makes the most sense to compare various funds.’

Flexibility

‘A degree of flexibility can be valuable - your pension fund has to respect the law, but you can still pay different amounts and switch benefits. Ask yourself what your company needs both now and in the future, especially if you plan to change the structure of your business.’

Customer Service and Support

‘You want a customer journey. Most pension funds now provide online tools that you can access quickly, or user-friendly apps that help your employees interpret things, because it makes no sense if you receive a statement of vested interests and don’t know how to interpret it.’ 

Cross-Border Pension Transfers

Transferring pension plans in and out of Switzerland can be a complex process, largely due to the current shape of the regulatory environment. Legal, tax, and social security legislation isn’t always coordinated across insurers, so it’s important to manage each aspect carefully and understand how they interact. 

The first course of action is to determine whether or not Switzerland has any bilateral agreements with your home country. 

These agreements can affect whether and how you can withdraw your pension savings.

If you’re moving to an EU or EFTA country, Swiss law generally does not allow you to withdraw the full amount of your pension savings, only the over-mandatory portion (i.e. the part above the legal minimum).

There are exceptions. For example, if the total amount is very small, you may be able to withdraw it in full, but in a standard case, someone likely has a more substantial pension balance. In those normal cases, only the over-mandatory portion may be withdrawn, and even that usually requires a formal request.

  • In rare cases, people moving to an EU/EFTA country can withdraw the mandatory portion of their pension if they can prove they’re not subject to local social security, via an application to the Federal Social Insurance Office in Bern.

Non-EU/EFTA Countries

If you're relocating to a non-EU or EFTA country, you're generally allowed to withdraw the full amount of your occupational pension (Pillar 2), including both mandatory and over-mandatory contributions.

However, there are important considerations to keep in mind:

  • Exchange rate risk: Pension funds usually pay out in Swiss francs. Depending on your destination country, currency conversion may affect the final amount you receive.

  • Withholding tax: Switzerland applies a withholding tax on pension payouts made abroad. Some countries allow you to reclaim this, while others don’t – it depends on existing tax treaties or bilateral agreements.

  • Plan ahead: It's strongly advised to consult a tax advisor and prepare early. Poor planning can result in avoidable financial loss.

  • Documentation required: Pension funds may request proof of deregistration from Switzerland, registration in your new country, a notarised partner signature (if married), civil status documents, bank details, and proof of your new address. Requirements may vary depending on your fund and personal situation.

What Happens When You Change Jobs in Switzerland?

When changing jobs within Switzerland, you're legally required to transfer your vested pension benefits from your previous employer’s fund to your new one. 

Most pension funds will hold the money for up to six months while awaiting transfer instructions. In most cases, the new provider will send a welcome letter and payment slip to help you complete the transfer.

If you leave your job without immediately starting a new one, your pension fund will automatically place your vested benefits into a vested benefits account, a temporary, blocked account. 

You also have the option to open your own vested benefits account or policy with a bank or insurer, which can be particularly useful if you're planning a sabbatical or time between roles.

If no action is taken within six months, the pension fund is permitted to transfer your money into one of these accounts by default. In some limited cases, funds may be held for up to two years.

Because every pension fund has slightly different rules and investment structures, it's important to stay informed and take an active role in your pension planning, especially when changing jobs.

Common Mistakes to Avoid

  • Not starting early enough 

‘One of the most common mistakes I see is when people don’t start soon enough, not only with savings, but with information as well. For example, not understanding the principle or not asking questions when you’re unsure about contributions. Even if your initial contributions are quite small, the growth at the end will be significant.’ 

  • Underestimating retirement costs

‘People often tend to miscalculate the cost of retirement. Whether that’s unexpected healthcare costs or daily expense changes, starting earlier can help build your buffer.’

  • Relying on the first pillar

‘The first pillar is only there to give you a basic minimum. You can’t expect the social security or the first pillar to cover all of your costs because when you’re retired, it’s not going to be enough to cover the cost of living here in Switzerland.’ 

  • Not understanding the tax system

‘At retirement, you can choose how to receive your occupational pension: either as a regular monthly pension, a lump-sum cash payout, or a combination of both. Each option has different tax consequences, so it’s important to clarify them in advance. You need to understand how much tax will be deducted from a lump sum, or what your income tax burden will be if you opt for monthly payments.’

The Swiss Tax System

Switzerland has a highly decentralised tax system, which means rates can vary significantly depending on where you live and work. Taxes are levied at three different levels: 

  1. Federal tax is applied uniformly across Switzerland.

  2. Cantonal taxes are set by each of the 26 cantons and can differ widely.

  3. Municipal taxes are determined by local communes and add another layer of variation.

These layers form a progressive system, where higher income results in higher rates. 

Key Tax Types

  • Income Tax: Paid at all three levels. Swiss residents are generally taxed on their worldwide income, while non-residents are taxed only on income earned within Switzerland.

  • Wealth Tax: Levied only at the cantonal and municipal levels. This applies to your net assets, such as real estate, securities, and savings.

  • Withholding Tax (Federal): A 35% tax on income from interest, dividends, and certain pension payments. In many cases, part or all of this can be reclaimed depending on your tax status and applicable bilateral agreements.

  • Tax at Source (Quellensteuer): Often confused with the above, this refers to the income tax automatically deducted by employers from foreign nationals who:

    • Do not have a C permit (permanent residence)

    • Are not Swiss citizens

    • Are not married to a Swiss or C permit holder

  • The rate depends on income, marital status, number of dependents, and even religion (due to the optional church tax, which is deducted for members of recognised religious communities).

  • VAT (Value-Added Tax): At 7.7%, Switzerland has one of the lowest VAT rates in Europe. A reduced rate applies to essential goods and services.

Personalised Support 

As always, please feel free to reach out to us with any questions you might have about living and working in Switzerland. As global recruitment specialists, it’s our job to provide comprehensive guidance for anyone wishing to navigate the Swiss labour market, relocate or make informed career moves across borders. 

Contact our commercial director, Viki Dowthwaite, directly here: Viki@trinnovo.com

Alternatively, let the team know what you need support with by filling out our enquiry form, and we’ll connect you with the right person: Enquire.