The Second Pillar of Retirement in Switzerland

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The three pillars of Retirement in Switzerland – 2. The second pillar Logo
This post is part 2 of 4 in the series The three pillars of Retirement in Switzerland.


We have studied the first pillar and Switzerland three pillars system in the previous post in the series. Now, it is time to see the second pillar. The first pillar covers the basic needs of everybody. If you did not read the previous part, I would encourage you to do it before you read this article.

The second pillar is here to cover a larger part of your salary than the first one. It is an occupational pension. If you never worked, you will never pay anything for this and you will never receive anything from this. It is significantly more complicated than the first pillar.

In this post, I am going to give you all the important details as possible on the second pillar. I am also going to help you understand what you can do to improve it.

The Second Pillar

The second pillar is your work pension. In French, it is called Loi fédérale sur la prévoyance professionnelle vieillesse, survivants et invalidité (LPP). In German, it is Bundesgesetz über die berufliche Alters-, Hinterlassenen- und Invalidenvorsorge (BVG). As you can see, the Swiss government is very good to make short names…

This pillar is a pension for every people who worked in Switzerland and paid into the LPP. Every Swiss employee of at least 24 years and with an annual salary of more than 21’150 CHF contributes to the second pillar. It is directly deducted from your salary and transferred to your pension fund. Interestingly, your employer will at least match your contribution. Some company contributes more than this. If you are an independent, you will have to pay both the employee and employee parts. How much you pay for the second pillar depends on your age:

  1. 25 to 34 years old: 7%
  2. 35 to 44 years old: 10%
  3. 45 to 54 years old: 15%
  4. 55 to 65 (64 for women) years old: 18%

The percentage deducted from your salary depends on the part your employer is paying. All the contributions to the second pillar are pre-tax. This is very important. You will pay the taxes when you withdraw your second pillar. You may notice that as you get older, you put more and more into your second pillar. This means that the last years matter a lot in the calculations of your second pillar pension. This is a bit dumb because the first years are the one that compounds the most and therefore should be contributed higher.

The first pillar was global insurance. But the second pillar is a physical account, in your pension fund, with your name. And your pension fund is related to your current employer. Each employer chooses its own pension fund.

If you change employer, you will need to transfer your existing contributions to the new pension fund. If you lose or quit your job, you will need to transfer the funds into a vested benefits account. This account will be locked until you get a new job (and a new pension fund) or you reach retirement age. Even if it is in your name, there is not a lot you can do with it. You cannot choose how it is invested, you cannot move money in or out.

Mandatory vs Extra Mandatory

Now starts the complicated part about the second pillar. We have to distinguish between the mandatory insured salary and the extra-mandatory salary.

We will only be talking about the yearly salary here. The mandatory insured salary is the salary between MIN and MAX. MIN is defined as 7/8 of the maximum of the first pillar, which is 24’675 CHF. MAX is defined as three times the maximum of the first pillar, which is 84’600. If your salary is between 21’151 CHF and 28’200 CHF, your mandatory insured salary will be 3’525 CHF. Everything higher than MAX is the extra-mandatory salary. So, the maximum mandatory insured salary is 59’925 CHF (MAX-MIN).

Let’s see a few examples with different annual salaries:

  • 20’000 CHF: Not eligible to the second pillar (less than 21’150 CHF)
  • 25’000 CHF: Mandatory insured salary of 3’525 CHF (less than 28’200)
  • 30’000 CHF: Mandatory insured salary of 5’325 CHF
  • 50’000 CHF: Mandatory insured salary of 25’325 CHF
  • 84’600 CHF: Mandatory insured salary of 59’925 CHF
  • 100’000 CHF: Mandatory insured salary of 59’925 CHF and Extra-mandatory salary of 15’400.

So what is the difference between these two parts?

I mentioned before the contribution rate for the second pillar. These were the contributions for the mandatory part. The contributions for the extra-mandatory part depends on your pension fund and on your company.

Another difference is the interest. The law sets a minimum interest rate of 1% on your mandatory contributions. But there is no minimum for the extra-mandatory portion. Your pension fund can offer better (or worse) interest on it. It is generally a bit better on the extra-mandatory portion. This interest is the only way your second pillar account money will grow. It is not really great interest rate. But there is nothing you can do about it. It still beats Swiss banks currently.

The last difference is the conversion rate. This will define how much pension can you get out of the capital. The law sets a minimum conversion rate of 6.8% for the mandatory portion of your capital. Again, no minimum is set for the extra-mandatory portion. Your pension fund will set the conversion rate. Generally, it is significantly worse than the conversion rate on the mandatory part.

How much will I get?

Once you reach retirement age (65 for men, 64 for women), you can get your second pillar. You have three options:

  1. An annuity
  2. A lump sum
  3. A lump and an annuity

Here is where the conversion rate is important. The annuity will be computed using the conversion rate. If you are converting 200’000 CHF with a conversion rate of 6.8%, you will get 13’200 CHF pension each year. If you take a lump sum, you will pay capital taxes and if you take an annuity you will pay income tax on top of it. For the extra-mandatory part, the conversion rate will depend on your pension fund.

Taken an annuity or a lump sum?

There no definite answer on this. It will depend on the conversion rate at the age of your retirement. And how much you expect to get out of the capital each year if you were managing it yourself. Generally, if you were to invest the amount into stocks, you would do, on average, better than the current conversion rates. However, there is a risk with stocks, whereas the conversion rate is guaranteed. In the end, you will have to do the math yourself depending on your situation.

Optimize your second pillar

Compared to the first pillar, there are a few things you can do to optimize your second pillar.

Just as it was the case for the first pillar, you can have holes in your second pillar. This can happen in several cases. For instance, if you started to contribute late due to your studies or if you were unemployed for some years. If you left Switzerland, you will stop contributing too. Finally, it generally happens simply because your salary is higher now than before. Therefore, you could contribute more now because your current salary would have allowed you to contribute more.

You can fill these holes (or contribution gaps) by voluntary contributions (or buy ins). These contributions are pre-tax too, so this will reduce your taxes. However, they are not matched by your employer. Moreover, buy ins are always extra-mandatory. Finally, they are locked for three years. It means there is no way to withdraw them before. You can ask your pension fund how much you are able to contribute to fill the gaps. There is an annual limit on how much you can contribute. They will also give you directions on how to perform these voluntary contributions.

If you have the means to do it, I think it is a good way to increase your pension and to lower your taxes. However, you need to be sure whether you should contribute to your second pillar or not. Be sure of what you are doing, because this money will be locked for years. This is also money that will not return a lot of interest. But it is a safe investment. You can think of it as a long-term bond investment.

Another thing you can do is choose a company with a better pension fund. Of course, this is not practical and the pension fund should probably not be the main argument for choosing a company over another. But this could make a large difference in your retirement. You can also ask your company if there is an option for investing more in the second pillar. Indeed, at some company, they give you the choice of how much to invest in it.

As for the first pillar, increasing your salary will increase your contributions to the second pillar. Then, it will increase your final pension. Do not forget that contributions to the second pillar are pre-tax. But of course, increasing the salary is not always possible or even what you want. And increasing your salary is an obvious choice if you can do it in good conditions.

If you want more details on the subject, you can read whether you should contribute to your second pillar or not.

Withdraw before retirement

You can withdraw money from your second pillar before retirement (early withdrawal).

The main reason for early withdrawal is to buy a house. Indeed, you can withdraw your second pillar money to build or buy a house. This will reduce your pension accordingly, but can greatly help you to have the funds for your house. The same applies if you want to start your own company. You can also withdraw the money if you are leaving Switzerland. The other reason is early retirement. You can withdraw your second pillar five years before retirement age.

The cast of leaving Switzerland is the most complicated, it will depend on where you are going to. If you leave for an EU country, you will only be able to withdraw the extra-mandatory part of your second pillar. But that will actually depend on exactly the country where you are going.

There are some limitations and rules to these early withdrawals. The minimum withdrawal is 20’000 CHF.  If you sell the house you bought with the second pillar, you have to repay what you withdrew. Contributions into your second pillar after early withdrawal will not be tax-free. After you have reached the same amount before the withdrawal, they will be tax-free again. Be careful that after 50 years old, you are limited in what you can withdraw. After age 50, you can only withdraw the amount that was available when you were 50 or half of what is available. The limit is the maximum of these two numbers. Finally, withdrawals are only possible every five years.


Every year, you should receive a report from your pension fund telling you a lot of things. It will give you information about how much you contributed, the mandatory part, the extra-mandatory part, … It also makes a prediction on how much you will have by retirement. You should not bother too much about the predictions. But it is interesting nonetheless.

This report is different from each pension fund, but most of the information will be the same. For instance, here is my redacted report from last year:

Page 1 of the report from my second pillar
Page 1 of the report from my second pillar
Page 2 of the report from my second pillar
Page 2 of the report from my second pillar

As you can, there are tons of numbers here. It will also cover things like death or pension in case of handicaps. If you are married or divorced, you will have more information than me.

If you are lucky, you will receive reports more often. And if you are very lucky, your pension fund will have a portal where you can see this information online. It will depend on your pension fund. My new second pillar company (at Pied Piper) updates its online portal monthly. I can track it much better now.

You should always keep these reports if you receive them on the mail (I scan them). They contain important information for your financial future.

Accounting for your Second Pillar

If you are tracking your net worth (and you should!), you may consider the second pillar inside it. Personally, I integrate my second pillar in my net worth and count it as bonds. Since it is a very safe and conservative investment, counting as bonds in my net worth make sense. Adding your second pillar into your net worth will give you a better picture of your entire assets. This is really useful.

If you want to track your net worth monthly, you have two choices. You can either extrapolate yearly information from the report. Or you can use the amount of contributions you do each month from your salary. Personally, I use the “Prestation de sortie effective au 31.12.XXXX “ metric from the report. Then, I extrapolate monthly values. If you want more details on this, you can read my article about second pillar and my net worth.


The second pillar is the second part of the retirement system in Switzerland. It will cover a larger part of your salary in retirement than the first pillar. While the first pillar was for everybody, the second pillar is only for employed people.

How much you get at retirement will mostly depend on your salary. With your first and second pillars together, you should gain a pension of about 70 to 80 percent of your salary. If you want to complete this, you will have to use the third pillar. I will cover the third pillar in the next post of this series. It is an optional part of the retirement system but has many advantages.

To continue learning about Switzerland retirement system, read about The Third and Final Pillar.

What do you think about the second pillar? Do you have tips to optimize it? Do you have any question regarding the second pillar?

About the author

Mr. The Poor Swiss

Mr. The Poor Swiss is the main author behind In 2017, he realized that he was spending more and more every year, 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 2018, he saved more than 40% of his income. He made it a goal to reach Financial Independence. You can send Mr. The Poor Swiss a message here.

8 thoughts on “The Second Pillar of Retirement in Switzerland”

  1. Hello again,

    I have 2 questions about withdrawing money from 2nd pillar when leaving for an EU country:
    1. Is withdrawal mandatory or the money could stay in CH?
    2. What happens with extra-mandatory part – is it lost or stays in CH and waits for your retirement?

    In the meantime I saw that you’ve already replied to my questions from 1st post in this series. Many thanks!

    1. Hello again :)

      1) It is a very good question. I am not sure. I never considered that case. I would say that it is not mandatory. You can probably let your money stay in Switzerland until the official retirement. Now, you may still have an issue. If you are not working in Switzerland, your second pillar will be in a vested benefits account. And some Swiss banks do not like to keep accounts for foreigners. So they may force you to withdraw the money after some time. I have a colleague that had to withdraw it after a few years of living in the U.S.
      2) Sorry, my article was incorrect. You can take the extra-mandatory part but not the mandatory one. It is exactly the contrary of what I wrote :( This is fixed in the article now. As for whether you can get back the mandatory, I think you cannot in most cases. Since you will be legally insured as well for the new country, you will not get it. But from what I read, there are ways to get it back if you are not working and are not receiving unemployment benefits, but it seems complicated.

      For these questions, I would advise you to see directly with your pension fund.

      I hope that helps a bit :)

      1. 1. You can transfer it to a vested benefit account, but cannot leave it with your current pension fund (automatic transfer after 6 months to the “institution supplétive”).
        2. You may always transfer the extra-mandatory part on your departure from Switzerland. The mandatory part will be transferred to a vested benefit account.
        Yet, if you leave to a country other than EU, Liechtenstein, Iceland or Norway, you can transfer it as well. (art. 25f LFLP)

        1. Hi LaKiks,

          Thanks for the added information!

          I did not know that there was a 6-month automatic transfer.
          Thanks a lot for the list of countries with the treaty! That is very useful.

          Thanks for stopping by :)

          1. Yes it is useful as the money you have forgotten about will be “regrouped” at the Institution Supplétive, you don’t have to remember and/or write the pension funds of all your previous works to make sure you have it all… Yet it is best if you transfer it to an other vested benefit account as the fees are very high there.
            And as it seems to truely interest you I might as well give the full details. The 6 month period is the most often used delay, yet legally the pension fund may keep the money up to 2 years at most (art.4 LFLP).

  2. Hello and thank you for the much needed info! It is very difficult as an American living in Switzerland to understand this system; it has not been easy to say the least! And we are so confused as to whether we would be better off financially to contribute to 2nd pillar and reduce tax burden or invest in stocks, our tax burden is really high and were desperate to get that down….Is it worth it in the long run or is it just tying up capital that could be a much better investment elsewhere? Thanks for your wisdom!

    1. Hi Natalie,

      Yes, I guess that the system is a bit complicated coming from the U.S.

      I have written an article about whether you should invest in the second pillar. Basically, it comes down to whether you want a short-term investment or a long-term one.
      It also depends on what else you have in your net worth. In Switzerland, your second pillar is your bonds allocation. If you want more bonds, you can invest in the second pillar.

      I hope this helps :)

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