Social insurance. All you need to know about social security/

Transcription

1 Social insurance All you need to know about social security/ Pension system in Switzerland Status: January 2015

2 Group of persons Benefits Calculation basis for benefits Old Age, Survivors and Disability Insurance AHV/IV AHV/IV Mandatory insurance Persons who live or work in Switzerland Swiss citizens who work abroad for the federal government or organizations designated by the Federal Council Persons deployed abroad for a fixed contractual period Individual pension (full pension) Applicable average annual income: Contribution years Adjusted earned income (split income during marriage) Education and care credits A Minimum pension: CHF 14,100 per year Maximum pension: CHF 28,200 per year Supplementary benefits EL EL Foreigners with 10 and refugees and stateless persons with 5 Eligible persons Swiss citizens and foreigners living in Switzerland who draw an AHV/IV pension uninterrupted years of residence in Switzerland Citizens of EU and EFTA countries: The ten-year qualifying period is waived Subsistence minimum Difference between creditable income and recognized expenditures such as rent and standard living costs in the canton, etc. (subsistence minimum). E Occupational benefits BVG BVG Persons receiving daily unemployment benefits for the risks of Mandatory insurance Employees subject to AHV contributions as of Jan. 1 after their 17 th birthday with an annual AHV salary above CHF 21,150 death and disability Voluntary insurance Self-employed individuals Employees who work for several employers Retirement pension Accrued retirement assets multiplied by the applicable conversion rate Men: 6.80 % Women: 6.80 % B Accident insurance UVG UVG Voluntary insurance Mandatory insurance Employees working in Switzerland (with exceptions) Self-employed individuals (special rules apply to family members working in agriculture) Pensionable salary Daily benefits or pension based on the pensionable earnings Maximum CHF 126,000/no minimum U Health insurance KVG KVG Mandatory insurance Healthcare: Swiss residents for sickness, accident (unless covered under the UVG), and maternity Voluntary insurance Daily benefits: Swiss residents and/or gainfully employed persons between the ages of 16 and 65 for sickness, accident (unless covered under the UVG), and maternity (cf. EO/maternity allowance) Mandatory healthcare insurance Standardized benefits for all insured persons Voluntary daily benefits insurance Some choice in benefits (health insurers grant only modest daily benefits) K Unemployment insurance ALV ALV Exception Mandatory insurance All persons mandatorily insured under the AHV until retirement age Self-employed persons are not insured Pensionable salary Maximum CHF 126,000 (same as under the UVG) Not insured Salaries below the monthly minimum of CHF 500 (or CHF 300 for teleworkers) Military insurance MVG MVG Eligible persons Persons rendering military, civil defense/civilian service Persons who carry out off-duty military activities Participants in inofficial shooting practice events Pensionable salary Maximum CHF 150,918 Cumulated AHV/IV, MVG benefits (and BVG) may not exceed the full (90 % of BVG in some instances) pensionable salary (supplementary pension) M Loss of earnings compensation / maternity allowance EO EO Maternity allowance: On the date when the employee as Eligible persons Persons serving in the army, civil defense, civilian service, Youth and Sports program, course for young marksmen (for pay) defined by the ATSG gives birth; self-employed persons or persons working for cash wages in the family or partner operation, provided the person was covered under the AHVG at least 9 months and employed at least 5 months before the birth. Pensionable salary Maximum CHF 88,200 E The Federal Law on Family Allowances has been in force since January 1, Family allowances include child and training allowances as well as the birth and adopted child allowances that have been introduced in some cantons.

3 Temporary incapacity for work Treatment, care, recovery Permanent occupational disability HV/IV Daily benefits Depend on the income and the number of children Entitlement while the person is being reintegrated into the workforce Reintegration measures Aids Care allowance Pension Amount depends on disability level: From 40 %: quarter pension From 50 %: half pension From 60 %: three-quarter pension From 70 %: full pension A Disabled person s child s pension: 40 % of the disability pension L No benefits Compensation of ancillary services, such as the cost of: Dentist Own contributions Care to healthcare costs Aids Etc. Goal: Cover the minimum living standard as calculated from recognized expenditures (rent, living costs etc. that are customary for the canton). E VG No benefits during a one-year waiting period No benefits Pension Amount depends on disability level: From 40 %: quarter pension From 50 %: half pension From 60 %: three-quarter pension From 70 %: full pension (Beginning of pension on Jan. 1, 2007) B Disabled person s child s pension: 20 % of the disability pension VG Daily benefits 80 % of pensionable salary from the third day until the disability pension starts or until the person is again fit for work Medical costs Hospital fees in general ward Prescribed stay in a health spa Aids Transportation Rescue and funeral costs Pension Pension as per disability level (linear scale: 10 % to 100 %) Full pension is 80 % of the pensionable salary No supplementary pension for female spouses No disabled person s child s pension Supplementary pension If the person is also eligible for an AHV or IV pension: Supplementing the AHV/IV pension up to 90 % of the pensionable earnings Indemnity for physical or mental impairment Lump-sum payment depends on the degree of impairment (in percent). Maximum CHF 126,000 VG contributions), rehabilitation, hospital stays in general ward, contributions to transportation and rescue costs, prevention (various examinations and tests) Healthcare insurance An individual or a group insurance policy Examinations, treatments, out-patient care, in-patient/partial in-patient care in a nursing home, analyses, medicines, spa treatment (treatment costs and daily Maternity: Check-ups during and after the pregnancy, delivery and obstetrics, advice on breastfeeding if needed U K ALV Partial unemployment benefit 80 % of the effective loss of income for a maximum of 12 months within 2 years Justified registration with the cantonal office, normally at least 10 days prior to the start Unemployment benefit 80 % of the pensionable salary for a max. of 520 days 70 % for non-disabled unemployed persons without dependent children whose daily benefits exceed CHF 140 A VG Daily benefits 80 % of the pensionable salary Medical, hospital or home care Aids (e. g. prostheses) Reintegration into the workforce Care allowance Pension Amount depends on disability level: Full pension is 80 % of the pensionable salary M O Recruits, persons not gainfully employed: 25 % (CHF 62/day) Employed persons attending a refresher course of the army: 80 %, min. 25 % (CHF 62/day) Child allowance: 8 % (CHF 20/day) per child Single-term conscripts and persons undergoing specific training: Special rates Maternity allowance: 80 % of the pensionable salary for 14 weeks, maximum CHF 196/day E

4 Death before retirement Benefits after retirement Benefits adjustment HV/IV Widow s/widower s pension Retirement pension 80 % of the applicable retirement pension. Conditions: Men from age 65, women from age 64 Widows with child/children Childless widows, min. age 45, marriage lasted min. of 5 years Widower until youngest child turns 18 In registered partnerships, the survivors are treated the same as a widower. Orphans pensions 40 % of the applicable retirement pension Orphans who lost both parents: 2 40 % of the retirement pension (limited to 60 % of maximum pension) L Goal: Cover the minimum living standard as calculated from recognized expenditures (rent, living costs etc. that are customary for the canton). Individual pension: 100 % Married couple (two individual pensions), limited to: 150 %* Widow s/widower s pension: 80 %* Retired person s child s pension: 40 %* Early withdrawal: Max. 2 years Deferral: Max. 5 years. * of the individual pension Goal: Cover the minimum living standard as calculated from recognized expenditures (rent, living costs etc. that are customary for the canton). In accordance with changes in salary and cost of living (mixed index) Every 2 years Annually, provided the index is above 4 % The Federal Council can adjust benefits VG Conditions: Widow s/widower s pension: 60 %* Orphan s pension: 20 %* Duty to support a child/children, or At least age 45 and the marriage lasted at least 5 years Otherwise a single settlement equaling three annual pensions In registered partnerships, the survivors have equal status as spouses. * of the disability pension for which the insured was eligible. VG Widow s/widower s pension: 40 %* Pension for child who lost one parent: 15 %* Pension for child who lost both parents: 25 %* Cumulated maximum: 70 %* Conditions: Childless widows: Pension if at least age 45 or min. ² ³ disabled Otherwise: Single widow s settlement Childless widowers: Pension, if min. ² ³ disabled In registered partnerships, the survivors have equal status as spouses. *of the pensionable salary Retirement pension Men from age 65, women from age 64 Individual pension: 100 % Widow s/widower s pension: 60 %* Orphan s pension: 20 %* Retired person s child s pension: 20 %* Early withdrawal: Guidelines in accordance with the pension fund regulations. Deferral: Max. 5 years * of the individual pension Inflation-adjusted Inflation-adjusted VG Daily benefits insurance Individual or group insurance policy For one or several illnesses or accidents: 720 days within 900 days Maternity: Daily benefits if insured for 270 days prior to the birth. Daily benefits for 16 weeks, of which at least 8 weeks must be claimed after the birth. The agreed waiting period is deducted from the benefit period. LV Bad weather allowance 80 % of the effective lost earnings for maximum 6 months within 2 years Insolvency allowance 100 % of the pensionable salary for the last 4 months of the employment relationship Mandatory occupational benefits Survivor s and disability benefits if the conditions for ALV daily benefits are met and the coordinated daily wage limit is reached VG Widow s/widower s pension: 40 %* Pension for child who lost one parent: 15 %* Pension for child who lost both parents: 25 %* Max. for all survivors together: 100 %* In registered partnerships, the survivors have equal status as spouses. *of the pensionable salary O Retirement pensions are based on half of the current disability pension (40 % of the pensionable salary) Before AHV retirement age: Adjustments of pensions to the nominal wage index After AHV retirement age: Adjustment to the national consumer price index All information without guarantee. Status: January

5 Financing Contribution rates AHV/IV Employee and employer jointly AHV: 8.4 %, 1.4 %, EO: 0.5 % Self-employed individuals AHV/IV/EO: % 9.7 % Individuals without gainful employment Depending on assets, min. CHF 480, max. CHF 24,000 (considered as paid if the gainfully employed spouse, who is not yet eligible for a retirement pension, has paid at least twice the minimum amount). EL None Financial basis Employer and employee each pays half Self-employed individuals Individuals without gainful employment Public assistance No upper threshold for salaries subject to contributions (no salary maximum) Federal government and cantons BVG 0.08 % for supplements in case of an unfavorable age From age 25 7 % 18 % of the pensionable salary for retirement credits structure % for insolvencies, other payments into the Guarantee Fund, as well as contributions for risk insurance (death and disability) and administration costs The occupational benefits institution defines the contribution amounts so that the employer s contribution equals at least the total in contributions of its employees. UVG For occupational and non-occupational accidents, companies are divided into risk classes. Each risk class has different risk levels. Premiums for: Non-occupational accidents are debited from employees Occupational accidents are debited from employers Salary subject to premiums limited to CHF 126,000 (maximum salary) KVG Mandatory healthcare Premiums, irrespective of gender or age on enrollment Lower premiums for children until their 18th birthday as well as for young people between the age of 19 and 25 Cantonal and regional levels Daily benefits insurance Based on special age levels ALV Up to CHF 126,000: 2.2 % of the pensionable salary. For higher incomes, an additional solidarity contribution of 1 % for salary components starting from CHF 126,001 Mandatory healthcare Premiums of insured persons, cost participation in the form of an annual excess and deductible for out-patient and inpatient treatments Contributions by the federal government and the cantons to lower the premiums for insured persons on a low income Daily benefits insurance Premiums of insured persons Employee and employer Each pays half of the contributions MVG None Federal government EO Employee and employer Jointly: 0.5 % for EO Employee and employer Each pays half of the contributions.

6 Pension and insurance matters demand individual attention. AXA shows you fresh alternatives and delivers relevant solutions. Arrange for an advisory meeting without obligations still today. This is only a translation, in case of legal disagreements the original German version alone is binding AXA Winterthur General-Guisan-Strasse 40 P.O. Box Winterthur 24-hour telephone: AXA Life Ltd

7 State pensions All you need to know about Pillar 1/ Old Age, Survivors and Disability Insurance (AHV/IV) in Switzerland Status: January 2015

8 Contents Pillar 1 of the Swiss pension system 3 Obligation to pay AHV/IV contributions 4 Level of contributions 6 Contribution period and contribution gaps 7 Entitlement to a personal pension 8 Education and care credits 10 Income splitting 12 Date of retirement 13 Benefits at retirement age 14 Disability benefits 15 Benefits in the event of death 16 Other important aspects 18 AXA offers no guarantees for the completeness or accuracy of the information in this publication. The laws and ordinances currently in force are binding in each case. January 2015.

9 Pillar 1 of the Swiss pension system/ Old Age, Survivors (AHV) and Disability Insurance (IV) in Switzerland makes up one element of the three-pillar concept, which is anchored in the constitution. The insurance involves a generational contract whereby the working population finances the pensions currently in force. Pillar 1 constitutes a state pension, the aim of which is to secure the livelihood of pensioners, persons with disabilities, and surviving spouses. 1 However, economic and especially demographic developments in Switzerland have led to a situation in which securing a livelihood under a state pension becomes possible only in connection with supplementary benefits (EL). Switzerland s pension system Needs-oriented pensions Pillar 1 State pensions Mandatory Pillar 2 Occupational benefits insurance Voluntary Pillar 3 Private pensions AHV/IV Supplementary benefits (EL) Mandatory benefits BVG/UVG Extra-mandatory benefits Tied pension (Pillar 3a) Flexible pension (Pillar 3b) Responsibility of the government AHV/IV contributions Employer and employee: each 50 % Self-employed persons and those not gainfully employed: 100 % self-funded EL contributions Funded with federal and cantonal tax money Responsibility of the employer UVG contributions Employer: Occupational accidents Employee: Non-occupational accidents BVG contributions Employer and employee: Employer contributions must equal at least the total contributions of all employees. Self-employed persons: 100 % self-funded Responsibility of the individual 100 % self-funded (to close individual pension gaps) Retirement pension Child s pension Disability pension Disabled person s child s pension Widow s/widower s pension Orphan s pension Daily benefits Retirement pension/capital Retired person s child s pension Disability pension Disabled person s child s pension Widow s/widower s pension Orphan s pension Insurance or banking solution Any other savings and assets 1 Art. 111 para. 1 of the Swiss Constitution serves as the legal basis 3

10 Obligation to pay AHV/IV contributions/ As a rule, retirement (AHV), disability (IV), income compensation (EO), and unemployment (ALV) contributions must be deducted from every salary payment in Switzerland. This applies without restrictions to employees from the age of 17. The obligation to pay contributions ends when the person reaches the statutory retirement age (women age 64/men age 65). Persons subject to mandatory insurance All persons domiciled in Switzerland Persons who are gainfully employed in Switzerland Swiss citizens who work abroad for the federal government or for organizations designated by the Federal Council Voluntarily insured persons Under certain conditions, the following persons can continue their insurance or take out AHV/IV insurance voluntarily: Persons who are stationed abroad by a Swiss company. Enrollment is subject to approval by their employer Swiss citizens and citizens of EU or EFTA member states who reside outside the EU or an EFTA country, provided they were mandatorily insured for at least 5 years without interruption directly prior to withdrawing Employed persons Beginning: on January 1 after the 17 th birthday End: when no longer gainfully employed, at the earliest when reaching regular AHV retirement age Persons who continue to work after having reached regular AHV retirement age must continue to pay contributions, but only for the portion of earnings that exceeds CHF 1,400 a month or CHF 16,800 a year. 4

11 Persons not gainfully employed Beginning: on January 1 after the 20 th birthday End: when reaching regular AHV retirement age In order to avoid gaps in contributions, spouses and widows/widowers who are not gainfully employed must contact the cantonal compensation fund of their municipality. Persons who are disabled or retire early are also considered to be not gainfully employed. Similarly, spouses not gainfully employed and widowed persons are also liable for contributions. If the employed spouse has paid at least double the AHV/IV/EO minimum amount (2 CHF 480 = CHF 960), the contributions of the spouse who is not gainfully employed are deemed to have been paid. This rule also applies if the employed spouse has already reached AHV retirement age. Persons who retire early Persons who retire early must continue to pay AHV/IV/EO contributions until they reach regular retirement age. Here, a distinction is made between the following situations when calculating the contributions that are due: No further disability: Contributions are calculated the same way as for persons not gainfully employed Part-time work: If, during a calendar year, contributions (from employer and employee) exceed half of those of persons not gainfully employed, the contributions for employed persons are owed for the entire year. Individuals who pay contributions or draw benefits receive an AHV card with a 13-digit social security number, which is issued once in Switzerland and never changes. It consists of three parts: A code for Switzerland (756) plus a 9-digit random number and check digit.

12 Level of contributions/ The solidarity concept of Pillar 1 also applies when it comes to calculating contributions. Persons with a higher income will pay higher contributions than are needed to finance their pensions, while those with lower incomes will draw more benefits than they earned based on their contributions. In other words, funds from the haves are transferred to the have-nots. Persons who are gainfully employed in full or in part Employees and employers each pay half of the AHV, IV and EO contributions. The corresponding contribution rates are calculated as a percentage of the gross salary. AHV/IV/EO contribution rates AHV 8.4 % IV 1.4 % EO (income compensation) 0.5 % Total 10.3 % Persons not gainfully employed The amount in contributions for persons not gainfully employed is calculated based on their assets and their annual income from pensions multiplied by 20 (without IV and EL benefits). The contributions of married persons are calculated based on half of the matrimonial assets and pension income, irrespective of the matrimonial property scheme. Annual AHV/IV/EO contributions Self-employed persons The contribution rate depends on the annual income. Amount of AHV/IV/EO contributions Annual income Minimum contribution <CHF 9,400 CHF 480 Annual income starting from Contribution scale CHF 9,400 up to from % CHF 56,399 up to % Annual income Contribution rate CHF 56, % Minimum contribution CHF 480 Maximum contribution CHF 24,000 6

13 Contribution period and contribution gaps/ Each missing contribution year will lead to a reduction in benefits. For this reason, it is important to close existing contribution gaps within 5 years. The compensation fund will provide an account statement for reviewing the situation free of charge. Complete contribution period Men: 44 contribution years (retirement age is 65) Women: 43 contribution years (retirement age is 64) In order to prevent contribution gaps arising from early retirement, all annual contributions must continue to be paid up to December 31 of the year preceding regular retirement age. Closing contribution gaps By paying additional AHV/IV/EO contributions up to a maximum of 5 years from when the gap arose By factoring in contribution years that lie more than 5 years in the past by the AHV (education/care years, adolescent years contribution periods in the year in which the pension falls due, or additional years) Education /care credits Contribution gaps cannot arise in the years during which a person has children below age 16 or looks after a close relative. However, individuals must continue to pay contributions in each case. Periods with education and care credits will be factored in as contribution time only if individually owed contributions can no longer be demanded. Adolescent years The contribution period relevant for calculating the full contribution term starts on January 1 after the person s 20 th birthday. Persons who started paying AHV/IV/EO contributions on January 1 after their 17 th birthday can use these contribution periods to cover contribution gaps. The same applies to persons who are eligible for education or care credits after their 17 th birthday. Contributions during the year of the pension case The period defining the complete duration of contributions but not the obligation to pay them ends on December 31 before the year in which a pension case begins (retirement age, start of a disability, death). Credits from contribution periods in the year in which a pension case began can be applied to fill a contribution gap. Earned income during this period will not be included when calculating the pension. Additional years A person who has pension gaps dating back before January 1, 1979, will receive up to 3 additional contribution years. Full contribution Additional years contribution years that can be included years Up to 1 year years Up to 2 years From 34 years Up to 3 years 7

14 Entitlement to a personal pension/ The entitlement to a pension is calculated according to the person s individual account by taking into consideration their earned income. Calculating the AHV/IV pension Each person is entitled to an individual pension from the AHV (single pension). Each spouse receives one retirement / disability pension. The amount of a single pension is calculated based on earnings and the contribution period. Persons who looked after children below age 16 or who provided care to relatives are also eligible for education and care credits. Individual account An individual account contains a record of all the income a person earns from January 1 after their 17 th birthday up to regular retirement age. This serves as the basis for calculating a retirement, survivors or disability pension. Revaluation factor The average income is adjusted to price and salary developments by using a revaluation factor and by including any education and care credits. Accordingly, earned income in years of low salary levels will receive a higher weighting. The decisive factor is the first contribution that is credited to the individual account between January 1 following the person s 20 th birthday and the date when the early or regular retirement pension starts. Full or partial pension Persons who have contributed for the full period will also receive the full pension. The amount depends on the relevant average annual income. If the contribution period is incomplete a partial pension is paid. AHV pensions per year Individuals Minimum CHF 14,100 Maximum CHF 28,200 Married couples Minimum CHF 28,200 Maximum CHF 42,300 8

15 Adjustment for inflation The pension amount or the increase of a pension in force is determined based on the pension index (hybrid index), which is calculated using 50 % of the nominal salary index calculated by the Federal Statistical Office and 50 % of the Swiss consumer price index. As a rule, pensions are adjusted every 2 years as of January 1. This differs from earlier times when the Swiss consumer price index increased by more than 4 % within a year. Calculation of the AHV/IV pension The pension formula is used to calculate the pension on the basis of the relevant average annual income. Earned income Revaluation factor Contribution years + Education credits + Care credits Contribution years = Relevant average annual income Number of employed persons for 1 pensioner A decreasing number of workers support an ever increasing number of penioners. Number of employed persons per pensioner 6 5: : : As of 2014, forecast by FSO

16 Education and care credits/ Education and care credits will increase the relevant average annual income, and this leads to a larger pension. Whereas education credits are added automatically, care credits must be claimed in writing annually. Education credits Education credits are applied to persons responsible for children below the age of 16. Here, the number of years and not the number of children is decisive. In the first child s year of birth, no edu - cation credits are applied; in the year in which the youngest child turns 16, the full amount in education credits are applied. Each spouse is entitled to half of the amount. This also applies to unmarried or divorced parents, provided they share childcare responsibilities equally. The decision of whether to share half of the education credits rests with the court, the child and adult protection authority, or the parents themselves based on an agreement. In the absence of any agreement, the mother is entitled to the full education credits. The compensation fund applies education credits automatically when calculating pensions. They equal three times the minimum AHV pension at the time when entitlement to the pension begins (3 CHF 14,100 = CHF 42,300). Education credits will increase the relevant average annual income, and this leads to a larger pension. However, the credits will raise AHV/IV benefits at the most to the maximum pension of CHF 28,200 a year. Education credits Birth of 1 st child, 1975 Birth of 2 nd child, 1979 Birth of 3 rd child, Non-eligibile education years Eligibile education years (26 CHF 42,300 = CHF 1,099,800) Effective education period 10

17 Care Persons who look after relatives are eligible for care credits, provided the following requirements are met: The relatives require assistance and receive care allowance for a moderate or severe disability from the AHV, IV, accident, or military insurance. Care contributions for children below the age of 18 with moderate or severe disabilities are treated the same way as the care allowance. The decisive factor is the number of years during which care is provided, not the number of persons. While no credit applies in the year when care starts, the year in which care ends will receive the full amount in credits that are due. Care credits equal three times the minimum AHV pension at the time when entitlement to the pension begins (3 CHF 14,100 = CHF 42,300). An application for the care credits must be filed each year with the cantonal compensation fund of the care recipient s community. The yearly application is important because, unlike in the case of education credits, it is very difficult to verify a claim that dates back 10 or more years. Retroactive applications can be considered for a period of 5 years. If several persons are involved in providing care, the care credit will be divided among them. Entitlement Entitlement to education or care credits is not contingent on whether the person is gainfully employed or not. If, in a particular year, the conditions for both credits are met, only the education credit will be applied. 11

18 Income splitting/ According to the concept of income splitting, which was introduced in 1997, half of the income each spouse earns during the marriage is credited to the other spouse. Divorced persons In the case of divorcees, earned income is divided either at the time of the divorce at the request of the spouse (joint or individual application by the spouses) or by virtue of the office when a pension case starts. Time of the split As a rule, the earned income of the spouses is split if both are entitled to a pension. As long as only one spouse is eligible for a pension, the pension will be calculated without the split. Widowed persons For persons who are widowed, earned income will be split only once entitlement to a retirement or disability pension begins. Division of income and credits In order to calculate the relevant average income per year of a married, divorced or widowed person, earned income achieved by both spouses during the marriage is split and each half is then credited to the individual AHV account. Any education and care credits earned during the years of the marriage are divided as well. Calculation of pensions for married couples Woman All earned income 50 % of own earned income 50 % of husband s earned income 50 % of the education/care credits Woman s pension Man All earned income 50 % of own earned income 50 % of wife s earned income 50 % of the education/care credits Man s pension Before the marriage During the marriage 12

19 Date of retirement/ Instead of statutory retirement at the age of 64/65, insured persons can ask to have their retirement pension start as much as two years early or have it deferred by up to five years. Spouses can set the date of their pension payments separately. Early retirement Men and women can retire 1 or 2 years before reaching regular retirement age. Persons whose retirement pension begins early will experience a lifelong reduction in the amount of the pension. The pension of men and women is reduced by 6.8 % for each year of early retirement. Pension deferral Men and women who are entitled to a retirement pension can defer it by a minimum of 1 year and a maximum of 5 years. Deferral will cause the pension to increase by a pro rata supplement depending on the duration of the deferment (deferment of 1 year = supplement of 5.2 %, deferment of 5 years = supplement of 31.5 %). There are no restrictions to starting the pension during this time. Pension reductions and increases with flexible retirement Number Pension reduction Pension increase of years Early retirement % % Regular retirement 2015 (women born in 1951/men born in 1950) Deferred retirement % % % % % (Status 2015) 13

20 Benefits at retirement age/ Regular retirement starts at age 64 for women and at age 65 for men. If contributions were paid for the full duration, the full pension amounts to a minimum of CHF 1,175 and a maximum of CHF 2,350 per month, depending on the average income. Retirement pension Every person is entitled to a pension from the AHV. The individual pension is at least CHF 14,100 and at the most CHF 28,200 a year. Entitlement to a retirement pension begins on the first day of the month following the month in which the person reaches regular retirement age. The retirement pension can in certain cases be drawn early or deferred. Pension supplement If a person is eligible for both a retirement pension and a widow s/widower s pension, the larger of the two will be paid. Widows/widowers are entitled to a 20 % supplement to their retirement pension. The pension plus this supplement may not exceed the maximum retirement pension (CHF 28,200). Child s pension Persons providing childcare who draw a retirement pension are eligible for a child s pension for each child below age 18 (or until the child has completed training; at the most until age 25). The pension equals 40 % of the retirement pension. Ceilings Both retirement pensions of spouses are reduced (capped) if the total exceeds 150 % of their maximum AHV pension (150 % of CHF 28,200 = CHF 42,300). If both parents draw a pension, the child s pension will be reduced if the total exceeds 60 % of the maximum retirement pension (60 % of CHF 28,200 = CHF 16,920). 14

21 Disability benefits/ The purpose of a disability pension is to compensate for the economic consequences from restricted capacity for work due to impaired health. The pension amount paid out depends on the level of disability. Entitlement to an IV pension ends no later than when the retirement pension starts. Basic principle The guiding principle of the IV is reintegration before pension. A disability pension is only granted if reintegration is not or only partially possible. Reintegration measures Medical treatment Integration measures in preparation for resuming a professional activity Professional measures Special education, therapeutic measures, and care for insured persons below age 20 who are impaired Supply of appliances Early recognition and early intervention Daily benefits and travel expenses Advice and support during reintegration Entitlement to provisional benefits if ability to work deteriorates again in the first three years after the person resumes work Attempt to resume work without contract but with daily benefits or pension for six months Disability pension Entitlement to an IV pension depends on the following: Reintegration is impossible Average incapacity for work of at least 40 % for one year without significant interruption Disability of at least 40 % as of the end of that year At the earliest upon having completed age 18 Three full effective contribution years before the pension comes into force Entitlement to a disability pension ceases as of the date when AHV retirement benefits begin. The pension must be adjusted or cancelled if the level of disability changes considerably. Level of disability From 40 % From 50 % From 60 % From 70 % Type of pension Quarter pension Half pension Three-quarter pension Full pension Child s pension Persons providing childcare who draw a disability pension are eligible for a child s pension for each child below age 18 (or until the child has completed training; at the most until age 25). The pension equals 40 % of the disability pension. If both parents receive a disability pension, each parent is eligible for a child s pension. Thresholds If both spouses are disabled, the pensions will be reduced (capped) as soon as the total exceeds 150 % of the maximum IV pension (150 % of CHF 28,200 = CHF 42,300). If both parents draw a pension, the child s pension will be reduced when the total exceeds 60 % of the maximum disability pension (60 % of CHF 28,200 = CHF 16,920). Widow s/widower s supplement Widowed persons who draw a disability pension are entitled to a 20 % supplement to their disability pension. The pension, together with this supplement, may not exceed the maximum disability pension (CHF 28,200). 15

22 Benefits in the event of death/ The purpose of death benefits is to reduce financial hardship if a spouse or parent dies. If the survivor is entitled to an AHV or IV pension at the same time, the higher pension will be paid out. Widow s pension Married women Married women receive a permanent widow s pension equalling 80 % of the retirement pension upon the husband s death, provided the following conditions are met at that time: There are children, irrespective of their age, or She has reached age 45 and the marriage(s) lasted at least five years (for couples who marry several times, the durations of the marriages are cumulated.) Widower s pension Husbands and divorced men The same conditions apply to married men and divorced men: They receive a fixed-term widower s pension equalling 80 % of the decedent s retirement pension until the youngest child has reached age 18. Divorced women Divorcees will receive a permanent widow s pension equalling 80 % of the divorced husband s retirement pension provided that one of the following conditions is met: There are children and the dissolved marriage lasted at least 10 years The divorcee was older than 45 at the time of the divorce and the marriage lasted at least 10 years The youngest child completed age 18 after the divorced mother reached age 45 Divorced women who meet none of these conditions are entitled to a widow s pension until the 18 th birthday of the youngest child. 16

23 Remarriage Entitlement to a widow s or widower s pension ceases upon remarriage If the new marriage lasts less than 10 years (divorce, declaration of annulment) the person will again be entitled to a widow s or widower s pension. Orphan s pension Children are entitled to an orphan s pension equalling 40 % of the relevant deceased parent s retirement pension until completion of age 18 for the duration of their training, but not after their 25 th birthday. If both parents have died, the children are entitled to two orphan s pensions. Thresholds Both orphan s pensions are reduced (capped) if their total exceeds 60 % of the maximum AHV pension (60 % of CHF 28,200 = CHF 16,920). Career supplement If a person dies before having reached age 45, the relevant average income is increased by a pro rata supplement when calculating the pension. Widowed person s supplement Widowed persons drawing a retirement pension are entitled to a 20 % supplement to their pension. The pension, together with this supplement, may not exceed the maximum retirement pension (CHF 28,200). The decisive criterion for the calculation of a child s pension and widow s/ widower s pension is always the personal AHV/IV pension. What pensions will the AVH be paying in 2015? Monthly rates for ordinary full pensions (CHF) Minimum Maximum Retirement/disability pension 100 % 1,175 2,350 Widow s/widower s pension 80 % 940 1,880 Orphan s/child s pension 40 % All pension rates are calculated based on the main pension (see Art. 35 et seq. of the AHV law).

24 Other important aspects/ State pensions are a complex set of regulations designed to accommodate individual situations as much as possible. Care allowance Persons who permanently require personal supervision or the help of another person for performing their daily needs on account of impaired health can apply for a care allowance from the AHV or IV. Such applications must be filed with those institutions that already pay benefits. Registered partnerships With the introduction of the Federal Law on the Registration of Partnerships for Same-Sex Couples, the following applies: A registered partnership has the same status as a marriage A legal termination of a partnership is the same as a divorce decree If one partner dies, the surviving person will have the same legal status as a widow or widower Simultaneous entitlement to a retirement/disability pension and a widow s/widower s pension If a person meets the conditions for both a retirement pension and a widow s/ widower s pension, the larger of the two will be paid. In order to be eligible for benefits, the following conditions must be met: Domicile and permanent residence in Switzerland. Severe or moderate level of dependency (IV: also a low level) Continuous dependency for at least 1 year (AHV) or permanent (IV) No care allowance from the mandatory accident or military insurance The amount of the care allowance is based on the level of dependency as well as on the living situation and is evaluated in line with the person s overall financial situation. Monthly care allowance 18 Level of dependency Benefits In a care facility At home Low AHV CHF 235 IV CHF 118 CHF 470 Moderate AHV CHF 588 CHF 588 IV CHF 294 CHF 1,175 Severe AHV CHF 940 CHF 940 IV CHF 470 CHF 1,880

25 Assistance contribution This contribution enables individuals who require care to remain at home despite their disability, making it possible to arrange for help individually. In this case, the IV will pay a contribution of CHF per hour. Care providers who require special qualifications in order to administer care because of a particular impairment by the insured person are eligible for an assistance contribution of CHF per hour. The rate for night duty is determined case-by-case and based on the amount of care that is required, at maximum CHF per night. For minors, the contribution is intended to allow them to attend a public school. Entitlement also applies to children and young people with severe disabilities who receive care at home. The assistance contribution is intended to remove some of the burden from parents and family members and provides an alternative to placement in a care center. Supplementary benefits Supplementary benefits are intended to secure the livelihood of AHV or IV pension recipients who are in an economically weak situation. These benefits are paid primarily by the cantons. Supplementary benefits are paid to persons who are entitled to an AHV pension, a pension or care allowance from the IV, or who have received daily benefits from the IV for at least six months, have their residence in Switzerland and also live there, and are Swiss citizens. Persons who are not Swiss citizens may also be eligible for supplementary benefits if they have lived in Switzerland continuously for ten years (as a rule there is no qualifying period for citizens of EU and EFTA countries). Supplementary benefits depend on the person s income and assets. Interested in additional publications in this series? Pillar 1: State pension Pillar 2: Occupational benefits Pillar 3: Private pension Social insurance: Pension system in Switzerland Current legislation on Pillar 2* Pension fund and residential property: Promotion of home ownership All brochures and information on pensions and insurance are available free of charge or can be downloaded at *in German, French and Italian 19

26 Pension and insurance matters demand individual attention. AXA shows you fresh alternatives and delivers relevant solutions. Arrange for an advisory meeting without obligations still today. This is only a translation, in case of legal disagreements the original German version alone is binding. AXA Winterthur General-Guisan-Strasse 40 P.O. Box 357, 8401 Winterthur 24 -hour telephone: AXA Life Ltd (client portal)

27 Occupational benefits All you need to know about Pillar 2/ Mandatory occupational benefits (BVG) in Switzerland Status: January 2015

28 Contents Pillar 2 of the Swiss pension system 3 Statutory contribution obligation 4 Mandatory pensionable salary 6 BVG benefits 8 Sample pension fund certificate 10 Principles of financing 12 Entitlement to pension fund assets 14 Other important aspects 16 AXA offers no guarantees for the completeness or accuracy of the information in this publication. The laws and ordinances currently in force are binding in each case. January 2015.

29 Pillar 2 of the Swiss pension system/ The Swiss Federal Law on Occupational Retirement, Survivors and Disability Pension Plans (BVG) constitutes a legal framework laying out the minimum requirements for occupational benefits institutions. In Switzerland, retirement, survivors and disability pensions are based on the three-pillar concept, which is anchored in the constitution. Pillar 2 is designed to enable employed persons and their family members to maintain their living standard. It consists of a mandatory and an extra-mandatory (voluntary) part. Switzerland s pension system Needs-oriented pensions Pillar 1 State pensions Pillar 2 Occupational benefits insurance Pillar 3 Private pensions Mandatory Voluntary AHV/IV Supplementary benefits (EL) Mandatory benefits BVG/UVG Extra-mandatory benefits Tied pension (Pillar 3a) Flexible pension (Pillar 3b) Responsibility of the government AHV/IV contributions Employer and employee: each 50 % Self-employed persons and those not gainfully employed: 100 % self-funded EL contributions Funded with federal and cantonal tax money Responsibility of the employer UVG contributions Employer: Occupational accidents Employee: Non-occupational accidents BVG contributions Employer and employee: Employer contributions must equal at least the total contributions of all employees. Self-employed persons: 100 % self-funded Responsibility of the individual 100 % self-funded (to close individual pension gaps) Retirement pension Child s pension Disability pension Disabled person s child s pension Widow s/widower s pension Orphan s pension Daily benefits Retirement pension/capital Retired person s child s pension Disability pension Disabled person s child s pension Widow s/widower s pension Orphan s pension Insurance or banking solution Any other savings and assets 3

30 Statutory contribution obligation/ Swiss employers are responsible for ensuring correct insurance coverage in accordance with the mandatory occupational benefits insurance. Employer Anyone who employs staff that is subject to mandatory Pillar 2 coverage must pay at least half of the contributions for the occupational benefits plan. Employees All employees whose annual salary subject to AHV contributions is above CHF 21,150 ( 6 8 of the maximum AHV retirement pension as of January 1, 2015) must be insured. Insured are: Disability and death risks from January 1 following the year in which the person completes age 17; From 1 January following the year in which the person completes age 24, the retirement benefits are also insured. Self-employed persons All self-employed persons have the right to take out voluntary insurance under the BVG. Unemployed persons As of July 1, 1997, unemployed persons, too, must be insured if they are eligible for daily benefits from the unemployment insurance and if their applicable daily income (daily unemployment benefits, plus any interim income or earnings from an employment program) exceeds the threshold of CHF This provision includes protection against disability and death risks, but not old-age risk. Exceptions: Fixed-term employment contracts of up to 3 months Exclusively secondary employment (provided that primary employment is already mandatorily insured or that the person is self-employed) Disability of at least 70 % Approximately every second woman but only every seventh man works part-time. 4

31 Insurance term Beginning: The mandatory insurance begins when an employee starts work; for those drawing unemployment benefits from the unemployment insurance, it begins on the day on which the first benefit payment is issued. End: Mandatory insurance ends when the insured person reaches regular retirement age, when the employment relationship ends, or when the insured person s income drops below the threshold. It also ends if the insured person is no longer entitled to daily unemployment benefits because the benefit period has expired. Temporary extended coverage The insured person continues to be covered against disability and death risks for one month after the pension relationship with the most recent occupational benefits institution ends (temporary extended coverage). If the person enters a new employment relationship before the end of that month, the new occupational benefits institution is responsible for providing coverage. Labor status Level of employment 5.0 % Women % 13.2% 2.1% Self-employed persons Family members working for the organization Employees Apprentices Men Total % 20% 40% 60% 80% 100% Full-time % Part-time 50 89% Part-time below 50% 5.5 Source: FSO 2014 Swiss Labour Force Survey (SLFS) 2013 Source: FSO 2014

32 Mandatory pensionable salary/ The BVG stipulates minimum requirements. All pension funds must therefore fulfill the requirements of the mandatory Pillar 2 part. Further benefits in what is referred to as the extra-mandatory part are also possible. Pensionable annual salary The pensionable salary (coordinated salary) is generally defined as the part of the AHV salary between 7 8 and three times the maximum current annual AHV retirement pension valid at the time (on Jan. 1, 2015, between CHF 24,675 and CHF 84,600, i. e. maximum CHF 59,925). If the coordinated earned income is less than 1 8 of the maximum AHV retirement pension (CHF 3,525 on Jan. 1, 2015), it is rounded up to this amount. Thresholds The Swiss Federal Council can adjust the applicable limits for mandatory occupational benefits commensurate with increases in the minimum AHV retirement pension. General developments in salaries can also be taken into account when adjusting the upper limit of the coordinated salary. The pensionable salary of employees or the pensionable income of self-employed persons may not exceed ten times the upper threshold (CHF 846,000). 6

33 Coordinated salary Salary portions above the BVG maximum are not insured under the mandatory Pillar 2 part. 15,400 CHF 84,600 Coordinated salary = BVG salary = Mandatory insurance 59,925 59,925 25,325 CHF 24,675 3,525* 3,525* 21,150 24,675 24,675 24,675 24,675 AHV salary 21,151 28,200 50,000 84, ,000 * The minimum pensionable BVG salary is always CHF 3,525 for salaries ranging between CHF 21,151 and CHF 28,200. Salary portion not mandatorily insured Coordinated salary (mandatorily insured BVG salary) Free salary portion without insurance obligation 7

34 BVG benefits/ Every year, all employed persons receive a pension fund certificate that informs them about the mandatory and possibly about the extra-mandatory benefits that they can expect. The information in this brochure refers only to mandatory employee benefits as prescribed by law. Upon retirement Retirement pension Entitlement to retirement benefits generally commences upon completion of age 65 for men and upon completion of age 64 for women. Regulations may stipulate that entitlement begins at the time of retirement, but not before completion of age 58. The amount of retirement benefits depends on: The retirement assets available when the pension starts The conversion rate as a percent of the retirement assets Minimum interest on retirement assets Taux de conversion minimum à l âge ordinaire de la retraite Retirement assets consist of: Retirement credits Any transferred vested benefits Interest earned on these amounts Pursuant to the ordinance of the Federal Council, the following applies: The minimum interest rate on the retirement assets is 1.75 % (2015) The minimum conversion rate for both men (age 65) and women (age 64) is 6.8 %. In the case of early or deferred retirement, the conversion rate will be adjusted commensurately. Women (64) /Men (65) 1,75 % 6,8 % (Status 2015) Retired person s child s pension Persons who draw a retirement pension are entitled to a pension for each child. The same prerequisites apply as for the orphan s pension. For each child, the retired person s child s pension equals 20 % of the retirement pension. 8

35 In the case of disability Disability pension An insured person is entitled to a disability pension if he or she becomes disabled before reaching retirement age. Calculation basis: Accrued retirement assets at the start of entitlement to a disability pension Sum of future retirement credits up to retirement age (without interest) The definitive retirement assets are converted into a disability pension with the same conversion rate used for the retirement pension. Disabled person s child s pension Persons who draw a disability pension are entitled to a disabled person s child s pension for each child. The same prerequisites apply as for the orphan s pension. For each child, the disabled person s child s pension equals 20 % of the current disability pension. In the case of death Spouse s pension The spouse s pension equals 60 % of the full disability pension or of the current retirement pension. Eligibility for a surviving spouse s pension: Duty to provide support for children, or Having reached at least age 45, and the marriage lasted a minimum of five years In all other cases, the spouse is entitled to a single amount of three annual pension payments. Registered partners of same-sex partnerships are treated the same as spouses. Orphan s pension The children of a deceased insured person are entitled to an orphan s pension. Entitlement continues until the child reaches age 18 or for as long as in training or at least 70 % disabled, but not past the age of 25. The orphan s pension per child equals 20 % of the full disability pension or of the most recent retirement pension payment. Cost of living adjustment on current pensions After three years, the current survivors and disability pensions are subject to a first mandatory cost-of-living adjustment. Further adjustments are generally made every two years (the same as in the case of the retirement and survivors insurance under the AHVG), but not after the year in which the recipient has completed age 65 (men) or age 64 (women). Adjustments to current retirement pensions depend on the financial position of the benefits institutions. Form of benefits Retirement, survivors and disability benefits are generally paid as a pension. As regards mandatory insurance, a quarter of the retirement assets may be paid as a lump sum. The regulations may also provide for additional lumpsum payments. Minimal pensions may be withdrawn as a lump sum. Key figures for BVG pensions in 2015 Theoretical entitlement to benefits per year Men (Retirement age 65; born in 1950) Women (Retirement age 64; born in 1951) Maximum retirement pension CHF 21,408 CHF 22,099 Maximum widow s/widower s pension (60 %) CHF 12,845 CHF 13,260 Maximum orphan s pension (20 %) CHF 4,282 CHF 4,420 Source: BFS

36 Sample pension fund certificate Personal Example Peter Example AG 8401 Winterthur Pension fund certificate Valid with effect from Pension fund Example Foundation Contract no.1/25251/ab Example AG 8401 Winterthur Your personal details Last name / first name Example Peter Beginning of insurance Date of birth Statutory retirement age reached on Gender Male Annual salary 78, Insurance number Pensionable salary 53, CHF Mandatory Extra-mandatory Development of retirement assets in 2014 portion portion Total Retirement assets as at , , , Interest (1.75 %) for , , Retirement credit for , , Retirement assets as at , , , The interest rate for the year 2014 for retirement assets corresponds to 1.75 %* for the mandatory 2 and the extramandatory portion. *interest incl. interest bonus Projected benefits on retirement or* (provisional figures projected with 2.5 % interest) Capital Pension by regular retirement at age 65 on , , by early retirement at age , , at age , , at age , , at age , , at age , , *Current conversion rate on statutory retirement: Mandatory portion %; extra-mandatory portion % 1 1/2 10

37 Disability benefits Annual disability pension after waiting period of 24 months 19, * Annual pension for disabled persons children after waiting period of 24 months 3,898.00* Waiver of contributions after waiting period of 3 months Death benefits Annual surviving spouse s pension 11, * Annual surviving partner s pension 11, Death lump sum in addition to the surviving spouse s or surviving partner s pension - Death lump sum if no surviving spouse s or surviving partner s pension is due 84, Annual orphans pension 3, * * In case of accident, the benefits stemming from the mandatory accident insurance are taken into account. In this case, the reservations in accordance with the regulations apply. Possible purchase of regulatory pension benefits Possible purchase of early retirement benefits on at age 64 16, at age 63 38, at age 62 60, at age 61 82, at age , The benefits purchase amounts shown are estimates in accordance with the pension plan. We will provide you with an up-to-date calculation before the purchase. For this we require detailed information from you on the Purchase of contribution years / early retirement form. You will find the form on our website, and we would be glad to assist you. Mandatory Extra-mandatory Entitlement on withdrawal before retirement age portion portion Total Vested benefits as at , , , Advance withdrawal for purchase of residential property Possible early drawing amount in favor of residential property as at , Contributions for occupational benefits insurance Total contribution , Your contribution 3, Your share of this amount for retirement benefits 2, Your share of this amount for risk insurance, administration costs and the Guarantee Fund Your personal monthly contribution based on 12 months The personal certificate is based on the regulations of your pension fund. This certificate replaces all previous versions and was issued on at the instruction of your pension fund. 1 When starting a job 2 Salary portion mandatorily insured under the BVG (see page 6) 2/2 11

38 Principles of financing/ Occupational benefits are funded using the level premium system, whereby each insured person accrues savings for his or her pension payments upon retirement. Contributions Retirement credits Retirement credits are defined as the employee and employer contributions that accrue as retirement assets. Pursuant to the BVG, the savings process for retirement benefits starts on January 1 following the year in which the person completes age 24. Retirement credits are calculated as a percent of the pensionable salary (coordinated salary) and change incrementally by age (calendar year minus year of birth). Incremental retirement credits under the BVG 7 % 10 % 15 % 18 % Age 55 64/65 Retirement credits as percent of the pensionable salary The basis for the financial stability of a pension fund is a funding ratio of over 100 %. 12

39 Risk contributions These include premiums for the risks of disability and death. Premiums may vary depending on the pension fund. Contributions to the Guarantee Fund Contributions to finance the Guarantee Fund are determined annually and approved by the Federal Social Insurance Office (FSIO). Contributions to administrative expenses Previously administrative expenses were often a part of the risk premium. Today, however, pension funds must disclose them separately in their accounts. Investment income Pension funds are obligated to provide long-term guarantees for all current and future pension payments. In order to fulfill this mandate, pension funds must invest and manage their BVG contributions in a way that offers optimum protection as well as a return on the investment in the course of decades. Investment income counts as a third source of contributions, besides the amounts paid by employers and employees. Breakdown of revenues Amounts paid into the occupational benefits insurance in 2012: CHF 63,427 m Breakdown of expenditures Amounts paid from the occupational benefits insurance in 2012: CHF 47,546 m 24.3 % 43.0 % Source: FSIO % Contributions and initial benefits by employee Contributions and initial benefits by employee Return on investment and other income Pensions Lump sums Administration/management* Withdrawal benefits, payments to insured persons, interest on liabilities * Excluding indirect asset management costs 25,943 m 6,714 m 1,890 m 13,000 m (In CHF) Source: FSIO 2014

40 Entitlement to pension fund assets/ The employer s current pension fund manages the assets that accrue during a person s gainful employment and transfers them to the new pension fund in case the person changes jobs. In exceptional cases, it is possible to have the benefits paid out in cash. Change of employer Vesting In accordance with the Federal Law on Vesting in Pension Plans, a person is fully entitled to all the available retirement assets (full vesting) when changing jobs, which also involves a change of pension funds/occupational benefits institutions. When transferring to a new occupational benefits institution, the previous institution must transfer the entire amount to the new one. If this is not possible, the person must take out a vested benefits policy or open a vested benefits account. Search for assets Anyone who is unable to locate their occupational benefits institution or Pillar 2 assets can contact the Second Pillar Central Office for support: Second Pillar Central Office BVG Guarantee Fund Administrative office Eigerplatz 2 P.O. Box Berne [email protected] Having the vested benefits paid out in cash is possible when leaving Switzerland for good (except when moving to an EU/EFTA country) becoming self-employed the vested benefits are less than one annual contribution by the insured person. 14

41 Promotion of home ownership Insured persons can make early withdrawals or pledge assets from their pension fund for the purpose of financing owner-occupied property up to three years before retirement. Early withdrawal Up to age 50, an insured person can withdraw an amount equalling the current amount of vested benefits. After age 50, the maximum amount in vested benefits that can be withdrawn equals the amount that was available at age 50, or half of the amount that is currently available whichever is larger. To be noted: An early withdrawal can be repaid voluntarily, but a withdrawal is possible only every five years Minimum withdrawal: CHF 20,000 A withdrawal will lead to a reduction in occupational benefits The entire amount of the early withdrawal must be repaid if the property is sold Pledge An insured person can pledge either the entitlement to pension benefits or a sum up to the full amount in vested benefits. In the latter case, the same provisions apply as in the case of an early withdrawal, in particular after the insured person has reached age 50. Divorce In case of divorce, each spouse is entitled to half of the retirement assets from the other s occupational benefits fund that accrued during the marriage, irrespective of the matrimonial property regime. This includes: Pension fund assets Assets from vested benefits accounts or policies Advance withdrawals made during the marriage The occupational benefits institutions will inform the divorce court about the vested benefits acquired during the marriage and about any advance withdrawals. The court then offsets the respective amounts and enters the exact difference and address for the transfer (occupational benefits institution or vested benefits account/policy) in the divorce decree. If a pension claim (retirement, disability, death) is filed before the divorce date, it is no longer possible to divide the assets in half. In this case the court will determine a reasonable amount in compensation for the beneficiary party. 15

42 Other important aspects/ Since the BVG came into effect, the legal regulations have been adjusted and supplemented several times for example through promotion of home ownership. The BVG will continue to be subject to changes in the future in the form of partial revisions. Occupational benefits institution Pension funds (collective foundations) fall under social insurance providers because they cover the primary social risks of old age, disability and death. Fulfilling the pension mandate requires a very broad approach when it comes to managing income and expenses. For this reason, occupational benefits institutions that intend to manage mandatory insurance plans under the BVG must meet the following requirements: Entry in the register of occupational benefits providers of the relevant supervisory authority Legal form: Foundation or cooperative, i. e. recognized as an institution under public law Transparency, loyalty and integrity of all parties involved Affiliation In general, employers become affiliated with a pension fund in order to manage their occupational benefits insurance. At the same time, every employer is free to set up its own independent pension fund. Employers without a pension fund become affiliated with the National Substitute Pension Plan foundation (see also page 18), which manages the mandatorily prescribed benefits. Audit The auditor reviews the institution s management, accounts and investments annually. Furthermore, the auditor must perform regular checks to ensure that the occupational benefits institution can meet its obligations at all times. Objectives of the BVG Since 1985 the BVG has served the constitutional goal of enabling retirees, survivors and disabled persons to keep, within reason, their accustomed living standard, supplementary to their AHV/IV benefits. However, because of the aging population and the subsequent need to pay pensions over longer periods, the minimum interest rate as well as the conversion rate had to be lowered significantly. These changes are increasingly casting doubt over the original objectives. 16 Employees and employers must have equal representation in the board, the occupational benefits institution s decision-making body. There is a clear trend: Fewer and fewer occupational benefits institutions insure an increasing number of gainfully employed persons.

43 Guarantee Fund The purpose of the Fund for all of Switzerland: Guarantee the benefits of occupational benefits institutions or funds that have become insolvent Re-establish contact between insured persons and their occupational benefits institutions (central Pillar 2 office) Provide subsidies for occupational benefits institutions with an unfavorable age structure. Such a situation arises if the total of all retirement credits exceeds 14 % of the total of pensionable salaries Compensate the National Substitute Pension Plan for costs incurred from performing its statutory duties Fiscal treatment The law stipulates the following: Institutions that manage occupational benefits are exempt from direct federal, cantonal and local taxes, as well as from inheritance and gift taxes. Employer contributions to an occupational benefits institution are regarded as a business expense by the federal, cantonal and local tax authorities. Contributions by employees or selfemployed persons to occupational benefits institutions pursuant to the statutory or regulatory provisions can be deducted from direct federal, cantonal and local taxes. Insured persons who purchase additional regulatory benefits can, as a rule, deduct the amount of the purchase from their taxable income. The tax authorities consider lump sum withdrawals made within three years after the purchase date as tax evasion. Such cases are likely to lead to unfavorable tax consequences. Benefits received from an occupational benefits institution are fully taxable. Reversionary claims to benefits from an occupational benefits institution are tax exempt. Early withdrawals for purchasing residential property must be declared, whereby any taxes paid are refunded, without interest, if the amount is repaid. Trends in occupational benefits 150% 140% Index 2004 = % 120% 110% 100% 90% 80% 70% Contributions and premiums Benefits 1 Total net assets 2 Benefit recipients 1 Active insured persons Occupational benefits institutions 1 Pensions and capital on old age, death and disability 2 Without assets/liabilities from insurance contracts Source: FSIO 2014

44 National Substitute Pension Plan The National Substitute Pension Plan, which is a foundation, is responsible for: Compulsory affiliation of employers who have neither founded an occupational benefits institution nor are affiliated with one Affiliation of employers at their request Acceptance of voluntarily insured persons, such as self-employed individuals and Swiss nationals living abroad employees who work for several employers employees who are no longer part of the mandatory insurance but who wish to continue their coverage. Payment of mandatory benefits to an employee or his/her survivors if the employer is not affiliated with an occupational benefits institution despite the legal obligation Administration of vested benefits that cannot be transferred Management of occupational benefits for unemployed persons Other important ordinances Swiss Civil Code (Art. 89 bis, 122 et seq. SCC) Code of Civil Procedure (Art. 279 et seq.) Swiss Code of Obligations (Art. 331 et seq. SCO) Swiss Federal Law on Vesting in Pension Plans (FZG) Various ordinances, in particular Ordinance 2 on the BVG (BVV 2) Interested in additional publications in this series? Pillar 1: State pension Pillar 2: Occupational benefits Pillar 3: Private pension Social insurance: Pension system in Switzerland Current legislation on Pillar 2* Pension fund and residential property: Promotion of home ownership All brochures and information on pensions and insurance can be requested free of charge at any time or downloaded at *in German, French and Italian 18

45

46 Pension and insurance matters demand individual attention. AXA shows you fresh alternatives and delivers relevant solutions. Arrange for an advisory meeting without obligations still today. This is only a translation, in case of legal disagreements the original German version alone is binding. AXA Winterthur General-Guisan-Strasse 40 P.O. Box 357, 8401 Winterthur 24 -hour telephone: AXA Life Ltd (client portal)

47 Private pension All you need to know about Pillar 3/ Tied and flexible pensions (Pillars 3a and 3b) in Switzerland Status: January 2015

48 Contents Pillar 3 of the Swiss pension system 3 Reliable pension coverage 4 Targeted capital accumulation 6 Characteristics of Pillars 3a and 3b 8 Pillar 3a bank and insurance solutions compared 10 Life insurance as Pillar 3 12 The right concept improves every Pillar 3 plan 14 AXA offers no guarantees for the completeness or accuracy of the information in this publication. The laws and ordinances currently in force are binding in each case. January 2015.

49 Pillar 3 of the Swiss pension system/ The Swiss pension system is divided into state pensions, occupational benefits insurance and private pensions. The financial security of every person and their relatives rests on these three Pillars once they retire or in the event of their death. Under Switzerland s statutory three-pillar pension system, Pillar 3 is the flexible and individual addition to mandatory benefits insurance. Switzerland s pension system Its purpose is to close possible gaps if coverage under Pillars 1 and 2 proves to be inadequate. Because of the increasing importance of private pensions, federal and cantonal provisions include attractive tax advantages that are aimed at promoting Pillar 3 plans. The statutory framework makes a clear distinction between tied and flexible pensions, referred to respectively as Pillar 3a and Pillar 3b. Needs-oriented pensions Pillar 1 State pensions Mandatory Pillar 2 Occupational benefits insurance Voluntary Pillar 3 Private pensions AHV/IV Supplementary benefits (EL) Mandatory benefits BVG/UVG Extra-mandatory benefits Tied pension (Pillar 3a) Flexible pension (Pillar 3b) Responsibility of the government AHV/IV contributions Employer and employee: each 50 % Self-employed persons and those not gainfully employed: 100 % self-funded EL contributions Funded with federal and cantonal tax money Responsibility of the employer UVG contributions Employer: Occupational accidents Employee: Non-occupational accidents BVG contributions Employer and employee: Employer contributions must equal at least the total contributions of all employees Self-employed persons: 100 % self-funded Responsibility of the individual 100 % self-funded (to close individual pension gaps) Retirement pension Child s pension Disability pension Disabled person s child s pension Widow s/widower s pension Orphan s pension Daily benefits Retirement pension/capital Retired person s child s pension Disability pension Disabled person s child s pension Widow s/widower s pension Orphan s pension Insurance or banking solution Any other savings and assets 3

50 Reliable pension coverage/ Persons who want to maintain their accustomed living standard upon retirement or in the case of disability will need more money than they can expect from the AHV and their pension fund. The same applies in the event of death: the relatives of the deceased person are usually faced with a substantial provision gap. Family and spouse With the birth of the first child at the latest, a family s pension requirements will change. Without any form of individual protection, the loss of earned income, let alone the death of a parent, is likely to lead to severe financial consequences. These losses can be compensated by means of a private pension. Even in the case of divorce, provisions can be aligned specifically to the divorce settlement. Security-oriented goals Retirement provision Financial protection in case of occupational disability Closing pension gaps for family or partner Retirement provision The higher the earned income, the greater the pension gap at retirement age. That is why it makes sense to take out a Pillar 3 pension plan when earning a medium-sized income. Pension gaps due to illness The Pillar 2 offers sufficient insurance coverage to cover the financial risks arising from disability or death as the result of an accident. However, according to statistics, illness is a more frequent cause of pension gaps than accidents. In the event of an illness, these risks are insufficiently covered by the state. Here, an individual Pillar 3 plan can be used to close whatever gaps there may be. Cohabiting partners Those living together like man and wife without actually being married cannot rely on AHV/IV and UVG/BVG (mandatory) benefits. Under inheritance law, too, there are no cohabiting relationships: each partner leaves his/her estate to his/her legal heirs. Unless the partner will inherit part of the freely disposable share of the estate under an inheritance contract or a will, he/she will not get anything. Taking out private pension insurance is therefore an ideal option for the mutual protection of cohabiting partners. 4

51 Pillar 3a and 3b provisions Private pensions are divided into two categories: Tied pension (Pillar 3a) Long-term plans in which the capital is locked into the retirement plan. Flexible pension (Pillar 3b) Flexible plans without a statutorily prescribed term. The capital is available at any time. Restrictions No restrictions apply when it comes to financing a flexible Pillar 3b plan. The amount that can be paid into a tied Pillar 3a plan, however, is restricted by law. Currently the following applies: CHF 6,768 for gainfully employed persons with an occupational benefits plan. CHF 33,840 for gainfully employed or self-employed persons without an occupational benefits plan. Tax advantages The government supports private pensions by granting tax advantages with a view to lowering the overall tax burden. The tax aspects of Pillar 3a are of particular interest. Payments into the plan are tax deductible, allowing for an annual tax advantage up to CHF 2,000. Furthermore, the amount that falls due on maturity is taxed not as regular income but at a special rate. The deduction limits are generally reviewed and adjusted every two years so as to optimize the tax burden. Example of pension gaps at retirement Benefits as a percentage of the salary earned % Pension gap BVG AHV Annual gross salary in CHF 1,000 Example Annual AHV pension BVG mandatory pension Gross salary while employed CHF 85,000 = 100 % AHV/IV CHF 28,200 BVG mandatory pension CHF 26,800 Annual pension from Pillars CHF 55,000 = 65 % Pension gap after retirement CHF 30,000 = 35 % Key figures: Insured person, born in 1975 (age 40) without contribution gaps Annual gross salary CHF 85,000 Maximum AHV pension CHF 28,200 BVG mandatory pension: Maximum pensionable salary CHF 84,600 Coordination deduction CHF 24,675 Maximum BVG pensionable salary CHF 59,925 Interest 1.75 % Conversion rate 6.8 % (Status 2015) There is no standard value or universal benchmark for pension needs. The decisive factors in calculating what is needed are financial obligations and requirements with regard to standard of living as well as the person s retirement age. A comparison of effective needs and benefits from Pillars 1 and 2 provides an optimal decision-making basis for sensible planning for Pillar 3. 5

52 Targeted capital accumulation/ Saving and investing are part of every type of future planning and hence also of private insurance. Financial possibilities, concrete goals, a timeframe and a personal need for security lead to an optimum strategy for capital accumulation within Pillar 3. Capital-oriented goals Secure capital accumulation Earnings-oriented investment Early retirement Purchase of residential property Private insurance is varied Assets/savings in savings accounts Bonds, shares, money market investments or units in investment funds Purchase of residential property Valuable collections Pillar 3a bank account Life insurance (Pillars 3a or 3b) Savings capital As regards payments, a bank account offers complete freedom, but there are no guarantees that the personal savings target will be reached. Life insurance financed with premiums involves regular payment periods and comes with a standard or optional feature, depending on the product, that exempts the person from premiums in case of occupational disability from an illness or accident. These properties ensure that the intended amount in capital is in fact reached. In addition, special pension privileges apply, such as free choice of beneficiaries (Pillar 3b) or with respect to inheritance, debt enforcement and bankruptcy. Investing capital Those who speculate on the stock market may make considerable profits but they also carry the entire risk of loss themselves. With a performance-oriented life insurance, protective mechanisms are, depending on the specific product chosen, included in order to compensate for or exclude capital losses due to negative price developments. However, no investment can meet its target fully as regards security, yield, and liquidity. Nevertheless, in the case of imminent or, where applicable, early retirement, the security of the investment should be thoroughly investigated. 6

53 Assessment of the return The assessment of earnings prospects without taking into account the tax situation often heavily distorts the benefits offered by an investment. For this reason, earnings should, as a general rule, always be assessed after tax. All in all, retirement products actually yield more profit than one might think based on a comparison of interest earned only. Purchase and repayment of residential property When it comes to financing residential property, Pillar 3 (especially Pillar 3a) and Pillar 2 are suitable instruments, since the capital can be withdrawn early or pledged. The same applies to the repayment of a mortgage: In the case of direct repayment, the mortgage is paid off on an ongoing basis. Indirect repayment involves investment in a pension account or a pension policy with a pledge to the loan company. This means that the mortgage, the interest payable and the tax deductions remain constant. Within every portfolio the relationship between opportunities and risks can be realistically optimized through private pensions. Asset pyramid Speculative investments Dynamic investments Security-oriented investments Basis Bonds, speculative shares and funds Shares, funds, unit-linked life insurance Bonds, money market investments, traditional life insurance Salary and savings account, residential property, AHV, occupational benefits insurance, term insurance Monitoring expenses, opportunities and risk increases

54 Characteristics of Pillars 3a and 3b/ Summary Products Group of persons Annual payments Availability/ redemption Beneficiaries in the event of death Debt enforcement and bankruptcy privilege Pledges Tax advantages Withholding tax Tied pension (Pillar 3a) Long-term approach to securing the financial resources needed in order to maintain the desired living standard after ordinary retirement Clearly defined rules with regard to payments, availability and beneficiaries Tax relief Life policies, pension accounts, pension custody accounts. All gainfully employed persons in Switzerland who pay AHV contributions. Statutory maximum amounts: Gainfully employed persons with occupational benefits insurance: CHF 6,768 Employed / self-employed persons without occupational benefits insurance up to 20 % of their AHV income: max. CHF 33,840 Withdrawals at the earliest 5 years before reaching regular AHV retirement age, or sooner in the following cases: Becoming self-employed Leaving Switzerland for good (emigration) Purchasing benefits from a Pillar 2 occupational benefits institution Financing owner-occupied residential property In certain cases in the event of disability Deferral in the case of employment past the regular retirement age: Women up to max. age 69/men up to max. age 70 (additional benefit purchases possible as permitted by law) Statutorily prescribed order of beneficiaries: 1. The surviving spouse or the surviving partner 2. The direct descendants and any natural persons who were supported to a considerable extent by the decedent, or the person with whom the decedent lived in a domestic partnership for the last five years prior to death without interruption or who is responsible for supporting one or more joint children. 3. The parents 4. The siblings 5. The remaining heirs The insured person can appoint one or several beneficiaries among those named under paragraph 2 and define their entitlement in detail. In paragraphs 3 5, the insured person has the right to change the order of beneficiaries and describe their entitlements in greater detail, and also to appoint others as beneficiaries, provided these persons are also heirs. Entitlement to insurance benefits can neither be pledged nor included in the bankrupt estate before the policy matures. A pledge is possible only for owner-occupied residential property. For all forms of pensions. Earnings (interest and bonuses) are exempt from withholding tax during the term. Flexible pension (Pillar 3b) Freely selectable term for reaching a particular objective No statutory provisos on payments, availability and beneficiaries Tax relief by observing certain requirements Life policies, investment funds, accounts, securities, residential property, valuable collections, etc. All persons living in Switzerland. No restrictions. Payment/contract term is fully flexible. Can be freely selected and changed at any time. Most insurance policies include a sample order of beneficiaries in their general insurance conditions. If the spouse, registered partner or the children are the beneficiaries, entitlement to insurance benefits can neither be pledged nor included in the bankrupt estate before the policy matures. Possible for any purpose. For all pension products. Earnings (interest and bonuses) from insurance products are exempt from withholding tax during the term. 8

55 Income tax Wealth tax Special case of indirect repayment of a mortgage Tied pension (Pillar 3a) Contributions into a pension plan can be deducted from taxable income. The law specifies the maximum amount that can be deducted. In the case of married couples where both partners are gainfully employed and both have taken out a tied pension policy, the contributions of both partners can be deducted from the taxable income Earnings (interest and bonuses) are exempt from income tax during the term The lump sum paid out is taxed at a special reduced rate Retirement pensions are taxed at 100 % by the federal and cantonal government. No wealth tax is a levied during the term. The mortgage loan is not repaid as usual by means of installments to the creditor (bank or insurer). Instead, the amount accrues in a tied pension facility. Upon maturity, the amount of the benefit that has accrued is used to repay the loan. This creates some interesting savings opportunities in terms of income tax because the mortgage debt remains fixed and the premiums can be deducted from taxable income up to the limit set by the government. Flexible pension (Pillar 3b) Tax-free: Periodically financed endowment life policies Single premiums, provided the following conditions are met: The policy was signed before the insured person s 66 th birthday The insured person has completed age 60 when the amount is redeemed The policy is redeemed at the earliest after 5 years The policyholder and the insured person are identical Income tax: Retirement pensions are taxed as income by the federal and cantonal government at only 40 %. The value (the surrender value of insurance policies) is subject to wealth tax. Flexible pension plans in the form of a life insurance policy are also suitable for indirect repayment of a mortgage loan the same principle applies as in the case of tied pensions. Policyholders benefit from tax savings because the mortgage debt remains fixed. Although the premiums of this type of pension cannot be deducted from income tax, the benefit paid out upon maturity is tax free. Ratio of age groups Private pensions are becoming increasingly important: By 2019, there will be more retirees than young people per gainfully employed person. 100% 80% 60% 40% 20% 0% 1970 Total Share of retirees Share of young people 119 Source: BFS 2010

56 Pillar 3a bank and insurance solutions compared/ Personal requirements are decisive when it comes to choosing a suitable provider of a Pillar 3a plan. While neither a bank nor an insurer can provide only advantages, a general comparison shows that life insurance has clearly more to offer than a pension account. Legal background Only two types of tied Pillar 3a pensions are recognized under the law: Pension account with a banking foundation Pension policy with an insurer Banks offer flexibility A Pillar 3a bank account is a good choice for anyone who does not need to protect a life partner or child financially and prefers not being forced into a savings plan or having to meet payment deadlines. Payments are voluntary and can be made at any time. The main argument for a Pillar 3a bank account is flexibility: No contract term No payment obligations Change of bank possible at any time Insurers offer protection Life insurance is the obvious choice when it comes to financial protection. The broad range of products makes it possible to select options in detail so as to effectively meet pension requirements and individual capital targets. A good solution exists for every life situation. The main argument for Pillar 3a life insurance is security: Guaranteed capital on maturity Protection in case of death or occupational disability Steady accrual of pension capital Payments are fully protected (by law). This applies even if the insurer goes bankrupt. Adjustable policies There is a common misconception that once a pension policy is signed its terms are written in stone and cannot be changed until the contract ends. The truth is that a plan can easily be adjusted if life circumstances change, and mostly without any disadvantages. Advantages from combined options It always pays off to diversify in order to minimize the foreseeable and unforeseeable risks arising from market trends. As in the case of all other investment decisions, this applies also when accruing Pillar 3a capital: Combining offers leads to advantages: Optimized return Optimized liquidity Optimized capital protection Optimized risk coverage Capital protection Financial and banking crises always raise the question of how secure money really is when invested with a bank or insurer. Bank The Swiss Federal Law on Banks and Savings Banks has provisions for protecting depositors, whereby each customer gets up to CHF 100,000 before any other creditor if the bank goes bankrupt. Banks with government backing are in a special situation, and many cantons offer guarantees on deposits of CHF 100,000 or more with their cantonal banks. Insurance In order to cover the liabilities arising from their customers life insurance contracts, insurers must form sufficient reserves and secure them as tied assets. The polices of a life insurance company licensed by the Swiss Financial Market Supervisory Authority (FINMA) that faces financial difficulties will therefore not be liquidated but handed over to another insurer or substitute benefits institution, which will pay the amounts that are due in accordance with the contract terms. Unlike in the case of a bank account, this type of assurance goes beyond CHF 100,000 and applies to all the accrued capital, including the interest and any bonuses that have been allo cated. 10

57 What does the offer include? Capital security Full capital protection in case the provider goes bankrupt Guaranteed lump sum on maturity Classic Pillar 3a life insurance Yes (total amount defined by law) Yes Insurance Innovative Pillar 3a life insurance Yes (total amount defined by law) Yes Bank 3a pension account Only up to CHF 100,000 No Risk coverage Guaranteed lump sum on death Yes Yes No Occupational disability pension Option Option No Flexibility Flexible term No No Yes Switch between 3a/3b possible Yes Yes No Exemption from premiums in case of occupational disability Yes/Option* Yes/Option* No Premium financing Yes Yes Yes Financing through a single premium Yes Yes/Option* Yes Premium holiday Up to 4 years Up to 4 years Yes Withdrawal without loss possible at any time No No Yes Return Guaranteed minimum interest Yes Option* No Surplus participation Yes Yes No Choice and switch of fund category No Yes Yes Higher earnings potential No Yes Yes Legal privileges Tax advantages * Yes Yes Yes Inheritance privilege* Yes Yes No Debt enforcement and bankruptcy privilege Yes Yes No Advance withdrawal or pledge under the promotion of homeownership scheme (WEF) Yes Yes Yes (all savings) Total (maximum = 19) * Depending on the product 11

58 Life insurance as Pillar 3/ Private pension insurance does not necessarily have to take the form of life insurance. However, due to its product variety and the possibility of an individualized combination of pension protection and capital accumulation, this form of pension provision is one of the most widely used solutions. Classic products There is a large selection of products for financial planning for the future and targeted hedging of the selected risks. The following list of the most common forms of life insurance is not exhaustive. Endowment insurance Providing for relatives in the event of death and at the same time accruing pension capital for retirement Traditional life insurance with guaranteed interest or with a unit-linked alternative Whole life insurance Financial security for surviving dependants Direct payment of the lump-sum death benefit to the beneficiaries not into the estate Occupational disability insurance Supplement to Pillar 1 and Pillar 2 accident and/or daily sickness benefits or disability pensions Retirement pension A life-long or temporary pension, as required, in addition to Pillar 1 and Pillar 2. Long-term orientation is one of the most reliable success factors in accumulating capital. 12

59 Innovations The new generation of pension and investment products offers a range of interesting concepts for reducing risk and boosting profitability. As a rule, they feature the following aspects: Dynamic capital accumulation with significantly higher profitability targets An investment profile that suits any investment strategy Disbursement according to a plan Capital available at any time Option to include a lump sum payable on death or an occupational disability pension Waiver of premiums This is an optional or integrated advantage of many life insurance policies to secure financing: in the event of an occupational disability through accident or illness, the insurance company will pay the outstanding premiums. This guarantees that the capital target is reached on maturity. Premium account Those who would like more flexibility will find the premium account to be the ideal addition to a pension policy because it allows you to make any number of regular and irregular payments. The annual premiums are booked automatically, and any outstanding amounts are invoiced if the account has insufficient funds. In addition, some products offer an attractive combination of high earnings opportunities and all the guarantees of a traditional life insurance policy. Compound interest Example with a savings goal of CHF 200,000 and an interest rate of 1 %: in order to reach the same savings goal, CHF 27,300 less needs to be invested if the savings term is 40 as opposed to 10 years. Savings term in years ,000 (4,050 per year) 170,700 (5,690 per year) 179,800 (8,990 per year) 189,300 (18,930 per year) 38,000 29,300 20,200 10, ,000 50,000 75, , , , , ,000 Amount in CHF Total amount paid Interest earned 7

60 The right concept improves every Pillar 3 plan/ Investing in Pillar 3 is gaining in importance every year. After all, no one knows what the future holds for you personally or economically. It therefore makes good sense to explore the many options available in private pensions, which can accommodate virtually any financial goal or life circumstance. How much to pay in? There is only one right solution for your current life situation, budget and plans for the future. As a rule of thumb, you should invest 10 % of the household budget consistently into a private pension plan as early as possible. Tip If you have a Pillar 3a insurance plan, use a premium savings account to get the same flexibility as a bank can offer. Pillar 3a has priority If at all possible, you should invest the statutory maximum amount into Pillar 3a every year. Doing so will help you to optimize not only your retirement provision but also your tax bill. If the budget permits or someone outside of the family must be included as a beneficiary, taking out a Pillar 3b plan is always a good choice. Tip Study the options of a premium holiday before you purchase such a plan. This would exempt you from your premium obligations for several years if need be, for example during maternity leave, a stay abroad or while on a training program. Life partner and family Most families continue to divide the roles of the members, whereby one parent is the main breadwinner while the other one mainly looks after the children and household, has no own income, and is insured only indirectly through the spouse. Tip Make sure that only one payment per year falls due and spread out larger amounts in accruing capital over several policies with different maturity dates. Residential property As tempting as it may seem to pledge your Pillar 2 and/or Pillar 3 assets in order to purchase the house of your dreams, the negative consequences of such a decision can easily and quickly outweigh the advantages. Tip Never make a decision of this nature without first calculating the impact of reduced retirement benefits. Here we recommend that you get professional advice from a pension expert. 14

61 Independence Self-employed persons without a pension fund can pay a much higher amount into their Pillar 3a account than gainfully employed persons who are already paying into a Pillar 2 plan. In case a self-employed person starts working for another employer again or joins a pension fund, a Pillar 3a pension policy can be used to purchase Pillar 2 benefits. Tip If you become self-employed and are no longer insured with a pension fund, you should invest all or at least some of your vested benefits into a Pillar 3 plan. It is essential that your income is secure in case you become occupationally disabled through an accident or illness. Furthermore, purchasing term life insurance offers the ideal mutual protection among business partners. Divorce If no separation of property was agreed before the marriage, each spouse is entitled to half of the other s pension capital that accrued during the marriage. Such an arrangement, however, is contingent on a legally valid divorce decree. The tied assets cannot be paid out and must be transferred to a Pillar 2 or Pillar 3a benefits institution. Having the amount paid out in cash is possible only if an application for an advance withdrawal is filed in accordance with statutory provisions. Pillar 3a pension policies can be adjusted in detail to the divorce settlement. For example, this may involve a declining death lump sum until the children have completed their professional training or a guarantee for alimony payments until support obligations as defined by the court end. Tip A customized Pillar 3 plan is worthwhile not only when things are going well. Especially after a divorce, it is important that alimony payments and childcare are secure also in case of disability or death especially for your children. Alimony as basis for livelihood Women who live off alimony payments following a divorce are generally at a disadvantage. Here, a private pension plan is all the more important because crucial retirement income from Pillars 2 and 3a is only available to gainfully employed persons. Tip Regardless of how tight the financial situation might be, we recommend that you invest even small amounts longterm into a Pillar 3b plan. Payment on maturity When accruing pension capital, people often neglect to think about the tax aspect when the amount matures. In most cases, it makes sense to plan in phases. Any payments from pension capital that may be due must therefore always be included in such a plan. Planning the maturity dates intelligently can quickly add up to five-digit amounts in tax savings. Tip Make sure that only one payment per year falls due and spread out larger amounts in accruing capital over several policies with different maturity dates. Reinvestment Once a life insurance contract matures, you will invariably face the question of what to do with the amount you receive. The beneficiary can decide to reinvest the assets or use them for other purposes. As regards retirement, you can also take out a suitable disbursement plan for your investment. Tip Avoid losing valuable time between the payment and the reinvestment date by informing yourself about your options as early as two years in advance. Interested in additional publications in this series? Pillar 1: State pension Pillar 2: Occupational benefits Pillar 3: Private pension Social insurance: Pension system in Switzerland Current legislation on Pillar 2* Pension fund and residential property: Promotion of home ownership All brochures and information on pensions and insurance can be requested free of charge at any time or downloaded at *in German, French and Italian 15

62 Pension and insurance matters demand individual attention. AXA shows you fresh alternatives and delivers relevant solutions. Arrange for an advisory meeting without obligations still today. This is only a translation, in case of legal disagreements the original German version alone is binding. AXA Winterthur General-Guisan-Strasse 40 P.O. Box 357, 8401 Winterthur 24 -hour telephone: AXA Life Ltd (client portal)