All you need to know about The First Pillar to retire in Switzerland

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The three pillars of Retirement in Switzerland – 1. The first pillar Logo

The retirement system of Switzerland is a system with three pillars. Each pillar is paid differently and will cover different needs. The first pillar is the state pension.

If you are working in Switzerland, it is essential to know these three pillars. Even if you do not plan to retire in Switzerland, it is essential to understand how they work. It will help you plan your retirement.

In this post, I am going to talk in detail about the first pillar. This post should contain everything you need to know about the first pillar to be able to retire in Switzerland. I am also going to provide an overview of the three pillars system.

I am going to use the French acronyms in this post. But the figure at the top of this post has the acronyms in English as well.

Introduction to The three pillars

Switzerland Three Pillars
Switzerland Three Pillars

Here are the three pillars of retirement in Switzerland:

  1. The first pillar (state pension). This first pillar will grant a pension to every Swiss employee after retirement. It is a state pension between 1175 CHF and 2350 CHF per month if you worked every year since you were 20 years old. Each employee in Switzerland finances this pillar.
  2. The second pillar (occupational pension). The second pillar will grant a pension to every Swiss employee after retirement. You will only receive money from this pension only if you worked and had an annual salary of more than 21150 CHF (currently). You will pay for this pillar with a deduction of your salary each month.
  3. The third pillar (private pension). The third pillar is a personal saving system. While the first two pillars are mandatory, the third pillar is optional. You can only save a certain amount each year into the third pillar. The exciting part is that this amount has tax advantages.

Every pillar will improve your quality of life after retirement. The first pillar is only there to cover your basic needs. The second pillar should cover about 75% to 80% of your last salary. And the third pillar, which is optional, should help you cover the missing part of the second pillar.

The first pillar

The first pillar is a state pension. Every Swiss person that is registered to this global insurance will receive this pension. The Assurance-Vieillesse et Survivants (AVS) insurance is what makes the first pillar. This insurance covers the basic needs of every people in Switzerland after retirement.

This pension is paid by every Swiss employee (and independent people) after 17 years old, through a deduction on their salary.

You pay for the AVS insurance together with two other insurance: The insurance for invalids (AI) and the insurance for when you serve in the army (APG). Each month, 8.4% of your raw salary is going to the AVS, 1.4% to the AI insurance, and 0.45% for the APG insurance. For a total of 10.25%.

Employees are paying half of the full contribution. And the employe is paying the other half. Therefore, you should see a deduction of 5.125% each month for these three insurances together.

For completeness’ sake, I should also talk about Unemployment Insurance. It is not directly related to the retirement system. But you will also pay for it month after month. You will also pay 1.1% of your salary (0.5% if you get more than 148’200 CHF per year) for it. It will cover the needs, for some time, of people who lose their job and are unable to find a new one.

Unemployed people also have to pay for this fee. People who do not have a salary have to pay the minimum fee of 478 CHF per year, starting from their 20 year birthday. There is an exception if their spouse is paying at least twice the minimum fee (956 CHF) per year.

If you have a significant net worth, the minimum fee will increase. For instance, with a one million net worth, you will have to pay 1947.50 CHF of the minimum fee each year. There are exceptions when paying this fee will reduce your living standard too much.

How much will I get from the first pillar?

First Pillar Pension based on salary
First Pillar Pension based on salary

The full pension is a minimum of 1175 CHF per month, up to a maximum of 2350 CHF per month. How much you get depends on several factors:

  1. How much income you got during your working life.
  2. The number of years you have contributed to the first pillar.
  3. Contributions for caring for children or relatives.

First, the amount of your salary determines the amount of the full pension. The minimum pension is up to a salary of 14’100 CHF per year. To reach the maximum pension, you will need to have an average annual salary of 84’600 CHF. You can see in the previous image how that scales. Between those two milestones, the full pension scales linearly.

The second factor is how many years you paid the AVS insurance. To get the full pension, a man should pay for 44 years and a woman for 43 years. If you have missing years, you will receive a pension prorated for the number of years you have paid the insurance.

The third factor is when you care for children below the age of 16 or care for relatives. During the years when you are in this situation, you cannot have contribution gaps. So even if you did not pay during this time because you had no income, it will not count as a gap in your contributions.

The first pillar and marriage

Importantly, a married couple cannot receive two full pensions, only 150% of a full pension (3525 CHF per month). Fortunately, the minimum is 200% of the minimum pension (2350 CHF per month). IT is really unfair to married couples with both a large income. But a lot of things are unfair to married couples in Switzerland (taxes, for instance).

This pension also covers the case of widowed people. If the dead spouse were eligible for a pension, the surviving spouse would receive this pension.

In the case of divorce, several things need to be considered. First, each spouse will get a pension based on half the combined income during the years of marriage. The care contribution credits are also divided in half. If one of the divorced spouses dies without having retired, the other spouse will get 80% of the deceased pension.

The first pillar and early retirement

The first pillar only covers official retirement, at the age of 65 for men and 64 for women. If you want to retire earlier, you can ask for the pension one or two years in advance. However, this means you will get a reduced pension of 6.8% per year of advance. You can also take it later, as seen in the next section.

If you want to retire earlier than two years before the official retirement age, you will only be eligible for the pension when you reach the retirement age. Before that, you will have to rely on your net worth to cover your expenses.

Optimize your first pillar

There is not a lot you can do to optimize your pension coming from the first pillar. Since it is mandatory, you are already paying it.

It is very important to avoid any years when you do not pay the AVS insurance. All these years will significantly reduce the amount you will receive. If you go to a foreign country for a long time, you should continue to pay the minimum each year to avoid penalties.

Even if you are living abroad after your retirement, you should receive your pension. But the country where you retire should have a social security agreement with Switzerland. When you are studying, you should also pay the minimum to avoid any missing years. If you missed a year of contribution, you could pay for it in the next five years. After five years, you cannot compensate for it anymore.

If you want to increase your pension, the biggest thing you can do is increase your salary. It may not be evident, and you should probably try to increase your income regardless of the pension.

There is one other thing you can do to increase your pension. You can delay the time at which you start to take it. If you delay the pension by one year, you will get a pension increased by 5.2%. It increases to 10.8% for two years, 17.1% for three years, 24% for four years, and 31.5% after five years (maximum delay). It is a gamble on your life expectancy. If you expect to live until 100 years old and you can afford to delay the pension, you should delay it for five years.

Accounting

I do not account for the first pillar in my net worth. There are several reasons for this.

  1. You do not only pay this insurance for you. It is a global social insurance. The people with more salary will pay more for people with a smaller salary.
  2. Then, since I plan to retire in Switzerland, I will never be able to touch the capital, only the pension.
  3. I am not entirely confident it will still exist once I reach the official retirement age.

However, I should maybe account for this in my computation of my Financial Independence (FI) ratio. Since it is a guaranteed pension after retirement age, you will need less money stashed for your needs. But it is a bit weird to account for it, and I still have not done it. Indeed, it is only starting at the official retirement age. And your retirement may begin early.

Another argument for not accounting for it is that it may not be solvent once I reach retirement age. It is a somewhat pessimistic point of view. But the population is rapidly aging, and Swiss couples have fewer and fewer children. I prefer to ignore it for now in my strategy, and I will rethink it when I am closer to retirement. If you are optimistic about it or you are close to retirement, you should account for the first pillar in your retirement strategy.

Conclusion

The first pillar is the first part of the Switzerland retirement system. It should cover the basic need of every retired Swiss person. Employees are paying it from their salary. Unemployed people are paying a minimal amount each year. The pension is quite low (2350 CHF per month at most).

Most people cannot live only on this pension after retirement. The other two pillars are here to complete your needs during retirement.

In the next post in this series, I cover the second pillar. It is an occupational pension that should include a more significant part of your salary in retirement.

To learn more about the three pillars system, read about the second pillar.

What about you? Do you have any tips regarding the first pillar? Or regarding the three pillars system? Do you have any questions about the first pillar?

Mr. The Poor Swiss

Mr. The Poor Swiss is the author behind thepoorswiss.com. In 2017, he realized that he was falling into the trap of lifestyle inflation. He decided to cut on his expenses and increase his income. This blog is relating his story and findings. In 2019, he is saving more than 50% of his income. He made it a goal to reach Financial Independence. You can send Mr. The Poor Swiss a message here.

13 thoughts on “All you need to know about The First Pillar to retire in Switzerland”

  1. It will be interesting to see how that third pillar works. Right now I can’t see any reason to essentially invest in an annuity instead of building a portfolio of stock index funds but I’m sure there must be something to it. Our system pretty much leaves retirement up to the individual with only the first pillar of social security, I look forward to seeing your next posts.

    1. I agree that you could maybe make more returns by investing entirely yourself into a capital and manage it yourself. However, the first pillar (and the second pillar) is mandatory. Therefore, even if you see no reason, you have to contribute to it if you are in Switzerland ;) This is the equivalent to the US social security.

      I still think it make sense to have a basic level of security after retirement for everybody even if some people end up paying more for the others.

      The post about the second pillar should come soon, stay tuned ;)

  2. Good article, kudos!
    AVS is one thing concerning me with fiRE. Contributions have to be paid even if you are not working and are then calculated according to your net worth. Do you see where I am going? AVS may work actively against early retirement.
    Can you say sth about this – how much to be paid for 1 Mio.? Would getting AVS-retired early make the contributions end earlier?

    1. Hi Martin,

      Thanks :)

      I’m not very concerned about this. If you have no income (early retirement) and a fortune of 1 million CHF, you’ll pay 1’947.50 CHF each year for the AVS. I don’t think it’s a very big expense. But of course, it has to be taken into account.

      I’m not sure I understood your last question. You can only get AVS up to two years early. At that point, you’ll stop paying contributions, but you’ll loose part of the pension. If you have a huge net worth, it may be worth doing it.

      I’m seeing the first pillar more as helping for the RE part of fiRE. You can consider that you’ll have more income after your official retirement and then need to save mostly for the part between early and official retirement.

      I hope that helps :)

  3. Hello,

    first of all, congrats for very useful blog! Currently I’m going through all your posts as I found it yesterday :).

    I have some questions as regards the first pillar. We were working in Switzerland as frontaliers for a few years and moved here this year.
    1. How we can calculate what we would get after reaching retirement age? Let’s say for a man, contributing only for 27 years until retirement age is reached and having salary always bigger than 84’600 CHF per year?
    2. If I started working let’s say 6 years ago, can I still contribute for missing years or it is too late (5 years back only)? What about the case when someone works less than 5 years? And finally – do you think it is good idea to contribute for missing years or it is better to pay more for 2nd pillar (assuming max for 3rd pillar is being paid each year)?

    Thanks in advance!

    1. Hello Szymon,

      Thanks :) I’m glad you like it!

      1) My understanding is that you would get 2350 * (27/44) = 1442 CHF per month. This could change since, in 20 years, the maximum could change.
      2) It is going to be too late. You can only fill back the years up to 5 years later.
      3) It could be worth it to pay for missing years, but I do not think you can in your case. However, contributing to your second pillar could be interesting. I have a post that is scheduled for today about contributing to your second pillar ;) It should be out in a few hours, keep tuned ;) In short, it is a very good short-term investment but a poor long-term one.

      Remember that I am no expert, not an advisor, you should get more points of view than mine ;)

      I hope this helps :)

      Thanks for stopping by :)

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