In Switzerland, there are three financial pillars. In this article, we'll focus on the second pillar and understand the basics. 😉
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The 3 pillars in Switzerland: Understanding the 2nd pillar (LPP) in depth
Do you want to control your financial future in Switzerland? The 3 pillars are the key.
Today, we're focusing on the 2nd pillar (the pension fund or LPP), this essential supplement for a peaceful retirement.
But before diving into 2P, let's do a quick recap on the first and third pillars, because everything is connected.
The 3 pillars at a glance
Here is a summary of the 3 Swiss pillars*:
| Pillar | Official name | What is it for? | Mandatory ? | Retirement age |
|---|---|---|---|---|
| 1st pillar | AVS (Old-Age Insurance) | Minimum living wages to survive | ✅ Yes for everyone | 63 or 64 years old = with penalty 65 years old = no penalty |
| 3rd pillar | Account 3a | Flexible savings (retirement, real estate project, etc.). | ❌ No (optional) | From age 60, or with a few exceptions |
| 2nd pillar | LPP (Pension Fund) | Complete the first pillar to maintain your standard of living. | ✅ Yes for employees (❌ No for freelancers, unless they choose to do so) | 58–70 years old* |
*Early withdrawal possible between 58 and 64 years of age, but with penalties (depending on your car).
Why is the first pillar NOT enough?
Imagine that you have worked all your life with a good salary.
In 2026, the maximum AVS pension is CHF 2,520 per month for a single person. For a married couple, the combined pension is capped at CHF 3,780 per month.
👉 Issue :
- These amounts are fixed by law And capped.
- More than 80% of the Swiss touch less that these amounts (because you have to win over 90,000 CHF/year (for decades to achieve them).
- 2,450 CHF/month, It is barely enough to pay an average rent in certain regions of Switzerland (not including insurance, food, transport, etc.).
Conclusion : The first pillar alone does not allow one to live decently in retirement in Switzerland. → The second pillar therefore becomes CRUCIAL.
But before we talk about the SP, let's analyze the third pillar.
The 3rd pillar: A concrete example to understand its importance
Why is the 3rd pillar important?
THE 1st and 2nd pillars form the basis of your retirement savings, but they do not necessarily guarantee that you will be able to maintain your standard of living in retirement.
L'’AVS (1st pillar) is capped: even with a high salary, your old-age pension cannot increase indefinitely. 2nd pillar It supplements the AVS, but its amount depends in particular on your insured salary, your years of contribution and your employer's pension plan (we will analyze after 2P).
That's where the 3rd pillar 3a becomes interesting: it allows you to build up additional personal savings, apart from the AVS and pension fund. You can use it, in particular, to improve your retirement income, finance certain authorized projects such as homeownership, or compensate for certain pension gaps.
Another important advantage: Payments made in section 3a entitle the holder, under certain conditions, to a tax deduction., which allows you to reduce your taxable income during your working life.
👉 In summary: The first pillar forms the base, the second pillar completes it, and the third pillar allows you to go further by building. your own retirement savings.
What should you do with your 3rd pillar?
Let's imagine that you're currently working and that after paying your bills, you have money left over each month. Let's say you want to add money to your 3a account each month.
You have 2 options if you wish to save in a 3a account :
- Leave it in cash. → You receive approximately 1% of interest per year (like a regular savings account).
- Investing it in your 3rd year in the stock market or in real estate (e.g., in a ETF Global 100)
If you choose option number 2, your money will fluctuate depending on the performance of your 3a. For example, the average return of the 3a Global 100 on Viac over 10 years is 7% per year, but the return is very volatile. (This return is not guaranteed for the future, just historical data.)
Thus, between 2016 and 2025, an investment in Viac's global 100 (99% shares) would have yielded 7 times more than a 3a account with 100% cash.
Therefore, the role of the 3a is to be a financial supplement to the first and second pillars. Let's now analyze the 2P.
2nd pillar: The basics to understand
The 2nd pillar (LPP): Everything you need to know
1️⃣ How does it work?
Each month, your salary is automatically divided :
- A portion is taken of your gross salary.
- Your employer adds their contribution.
Each month, a contribution is deducted from your salary, and your employer also pays a contribution to the pension fund. The amount depends on factors such as your age, your insured salary, and the regulations of your pension fund. The employer must finance at least 50% of the contributions, but some companies cover more.
For example, if you have a salary of 80,000 CHF per year and you and your employer each pay 7 % into your 2P, that makes 14 % in total, or 11,200 CHF per year into your 2P.
Note that this figure of 14% is an example. In reality, the percentage contributed depends on your employer's conditions.
2️⃣ Who can benefit from it?
| Status | Mandatory ? | Terms |
|---|---|---|
| Employee | ✅ Yes | To earn at least a salary of CHF 22,680/year (legal threshold). |
| Independent | ❌ No | But possible (voluntary choice). |
You can benefit from the 2P scheme if you are employed. If you are self-employed, it is voluntary.
👉 Namely :
- There is approximately 2,000 pension funds in Switzerland.
- Each cashier has their own rules (fees, investments, returns).
- You have no choice If you are employed: you must accept your employer's cash register.
3️⃣ At what age can you withdraw your 2nd pillar?
To buy a home in Switzerland or become self-employed, you can withdraw money from your 2P account at any age under certain conditions. However, to withdraw funds for your retirement, it's:
| Age | Terms | Consequences |
|---|---|---|
| 58–64 years old | Withdrawal anticipated | According to the pension fund, there may be penalties. |
| 65–70 years old | Withdrawal without penalty (legal age). | No additional fees. |
Example :
- If you remove your 2P before 65 years old, Your pension fund could add you penalties, but it all depends on the policy of the fund.
- If you wait 65 years old, you benefit from 100% of your capital (without taking taxes into account).
4️⃣ How to withdraw your 2nd pillar pension?
You have 3 options (depending on your car):
Option 1: Capital withdrawal
- You receive all your money at once into your bank account.
- Advantage Total freedom to invest or spend.
- Inconvenience : Single tax (varies depending on the canton)
Option 2: Monthly annuity
- Your fund pays you a regular income, generally until your death, depending on the terms of your pension plan.
- Advantage : you benefit from a stable lifetime income, as a salary supplement.
- Inconvenience : this option is less flexible than a lump-sum withdrawal
Furthermore, in the event of death, the remaining capital does not automatically pass to the heirs.
Option 3: Capital + annuity mix
- 50% capital (e.g., CHF 100,000) + 50% annuity (e.g.: 1,000 CHF/month).
- Available only if your car allows it.
Note that it is not necessarily 50% capital and 50% annuity. It all depends on what the insured person negotiates with their pension fund.
5️⃣ Taxation: How much will you pay?
The tax on the 2nd pillar depends on:
- From the canton where you live (e.g.: Zug = 1.5%, Geneva = 3.5%).
- Of the amount withdrawn (the higher it is, the more the rate can change).
Therefore, if you are considering changing cantons before a large withdrawal, compare the taxation of capital benefits: the canton of residence at the time of payment can have a significant impact on the tax due.
A key feature of the 2P: What you ABSOLUTELY need to know
🔸 Border residents
If you work in Switzerland as a cross-border worker, you can be affiliated with 2nd Swiss pillar, if you meet the legal conditions for being subject to it.
However, the rules may be different when you leave your job in Switzerland or when you return permanently to your country of residence.
👉 Key points to remember: Being a cross-border worker does not automatically mean that the rules are the same as for someone domiciled in Switzerland. If you are leaving permanently, check the rules applicable to your situation with your pension fund.
🔸 Changing your 2nd pillar pension plan: is it possible?
As an employee, you generally cannot not freely choosing your pension fund : you are affiliated with the pension institution chosen by your employer.
However, when you change jobs:
- your new business may have another pension fund
- your exit balance should then be transferred to your new employer's account
- The conditions of insurance can be very different. from one crate to the other.
👉 Key points to remember: You can compare the benefits packages offered by different employers before making your career choice.
Sometimes, between two companies offering the same job, you can have the same salary but a higher 2P (proportional compensation) at one company. Don't hesitate to analyze each 2P.
🔸 Divorce: what happens?
In the event of divorce, the accumulated occupational pension assets during the wedding are in principle shared between the two spouses.
👉 Key points to remember: In the event of a divorce, it's not necessarily half of your current capital that is transferred. It's primarily the assets accumulated during the marriage that are affected.
🔸 Unmarried couple: remember to check the beneficiaries!
If you live in a common-law relationship, your partner does not necessarily automatically have the same rights as a married spouse.
The conditions depend in particular on the your pension fund regulations.
👉 Advice : Check with your health insurance fund to see if your partner can be recognized as a beneficiary in the event of your death and what steps you need to take to declare it.
This can be particularly important if you have children, shared accommodation, or shared finances.
🔸 Going abroad with your second pillar
If you are planning to leave Switzerland permanently before retirement age, here is what you need to know about withdrawing your 2P.
| Situation | What you can usually remove |
|---|---|
| Departure for an EU/EFTA country | There optional part can in principle be paid. Overall, this share is estimated at 10% of 2P. |
| Departure for a country outside the EU/EFTA | The entire amount can in principle be paid out, subject to the applicable conditions. |
⚠️ Attention : It's not a fixed percentage. The supplementary portion can represent a small or large part of your total assets depending on your pension fund and your career path.
The key point to remember is that if you move to a country within the European Union, you won't be able to withdraw the full amount of your 2P pension, except for one exception at the moment…
What if you go to the EU without working?
This is where there is an important nuance.
If you permanently leave Switzerland to settle in an EU/EFTA country and you prove that born If you haven't worked for a while and you don't request assistance from your country of residence, you may, under certain conditions, request payment of your entire pension assets, including the mandatory portion.
This request requires meeting complex conditions. And it's possible that some funds won't accept this process. But remember, it's perfectly legal to make this request.
Otherwise, be aware that the withdrawal of your 2P is taxable at the time of withdrawal. Find out the amount of tax before submitting your request.
🔸 Changing jobs: don't forget your exit credit!
When you change employers and your new company has a different pension fund, your exit balance should normally be transferred to the new cash register.
👉 Advice : checks that the transfer has been completed successfully.
I've met people who have forgotten they had money in an old pension fund. It's a shame, because it's their money.
So don't let your old 2nd pillar "disappear" from your radar when you change jobs.
🔸 Starting your business with your 2nd pillar
If you leave your job to become self-employed, you can, under certain conditions, apply for cash payment from your pension fund.
In particular, you need to be able to demonstrate that you have actually started an independent activity.
⚠️ Attention : Using your second pillar to finance your business also means using part of your retirement capital.
🔸 Gaps in foresight: what to do?
Depending on your situation, you may have a lack of pension contributions. In simple terms, this means that you haven't contributed for one or more years, due to, for example, studying at an advanced age, unemployment, or a sabbatical.
In truth, if you lack foresight with your 2P, your insurance company will penalize you financially once you are a senior citizen.
To avoid this situation, your pension fund will offer you a buyback of your second pillar.
Why make a buyout?
A buyout can allow:
- to increase your retirement savings
- to improve your future retirement benefits
- but also, of reduce your taxable income
Indeed, making a buyback can be advantageous, as it allows you to reduce taxes.
However, in my opinion, these buybacks are only interesting when approaching sixty years of age, because before that, it is better to invest in a 3a global 100.
How to optimize your second pillar pension plan?
I'm actually going to write an article about this; it will be available here.
Summary: The 7 key points to remember regarding the 2nd pillar
- The 2nd pillar complements the AVS and plays an important role in maintaining your standard of living in retirement.
- You and your employer contribute to the pension fund., according to the rules of the pension scheme.
- If you change jobs, your exit balance must follow. and be transferred to the new branch. Find out if that's the case!
- Early retirement is possible under certain conditions, but benefits may then generally be reduced.
- Retired, You can, according to the rules of your car. choose between annuity, capital or a combination of both.
- Taxation can have a significant impact on a capital withdrawal, particularly depending on your canton of residence.
- Buybacks from second-pillar pension funds can be advantageous., in particular to increase your retirement savings and to reduce your taxes, but they must be studied on a case-by-case basis.
My final piece of advice
«"Don't neglect your second pillar!"»
Your second pillar potentially represents hundreds of thousands of francs during your career. Yet, many people almost never look at their pension certificate.
Take a few minutes to check:
- how much have you already accumulated
- How much do you and your employer contribute?
- What benefits does your fund provide?
- what would happen in the event of disability or death
- And How much could you receive in retirement?
And if you are considering a buyout, moving abroad, early withdrawal or a change of canton, take the time to compare the consequences before making a decision.
👉 Your second pillar pension is not simply a deduction from your salary: it's an important part of your future wealth. 😉
FAQ: 2nd pillar in Switzerland (LPP), the basics to understand
What is the 2nd pillar in Switzerland?
THE 2nd pillar, also called LPP or occupational pension plan, This supplements the first pillar (AHV/AVS) to help maintain the standard of living in retirement. In principle, employees meeting the legal requirements are affiliated with a pension fund, and Both the employer and the employee contribute to the financing. Thus, the 2nd pillar constitutes an important part of pension provision in Switzerland.
At what age can one withdraw their 2nd pillar pension?
In principle, a Early retirement may be possible from age 58, according to the pension fund regulations. However, early retirement before the reference age generally results in a reduction of benefits, Because you contribute for a shorter period and the conversion terms may be less favorable. Conversely, some pension funds allow you to continue your coverage until age 70 if you continue working.
Can you withdraw your 2nd pillar pension as a lump sum?
Yes, it is possible to request all or part of your retirement savings in the form of capital, However, the specific terms and conditions depend on your pension fund's regulations. Some funds allow partial withdrawals, while others have specific conditions. Furthermore, the amount of capital withdrawn is taxed separately from other income, at a preferential rate.
What happens to my second pillar pension if I change jobs?
When you change employers, your to have an exit Your pension assets should normally be transferred to your new employer's pension fund. This ensures your retirement savings continue to be invested within your new fund. If a transfer to a new fund isn't possible immediately, your assets can be placed in a... free passage solution.
Can you withdraw your second pillar pension funds to buy a home?
Yes, under certain conditions, it is possible to use part of your second pillar to finance the’access to home ownership of one's main residence. However, this early withdrawal reduces your pension assets and may therefore decrease your future retirement benefits. Consequently, it is important to compare the immediate benefit of the withdrawal with its long-term impact.
Can I withdraw my second pillar pension upon leaving Switzerland?
Yes, but the rules depend in particular on the country you are settling in. If you move to an EU or EFTA country, the mandatory portion of your LPP (Occupational Pension Plan) is generally frozen if you are subject to the mandatory pension scheme of your host country, while the supplementary portion can, under certain conditions, be paid out. However, if you are not subject to mandatory insurance in your new country, you can, in some cases, request payment of your entire pension asset.
Is it worthwhile to make a buyback of 2nd pillar?
A buyback of 2nd pillar may be useful for increasing your retirement savings and, under certain conditions, benefiting from a tax deduction. However, this depends in particular on your tax situation, your pension plan, and your financial goals. Therefore, before making a significant withdrawal, it is best to check the conditions with your pension fund and compare the different options.
Second pillar: the basics to understand
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Second pillar: the basics to understand
2nd pillar: The basics to understand
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