The second pension pillar in Switzerland — the mandatory occupational pension system (BVG) — is a central component of the Swiss retirement model. Together with the state pension system AHV, it forms the financial foundation for income after retirement. This pillar allows employees to accumulate pension capital throughout their working lives, ensuring financial stability once they leave the labour market. For most employees in Switzerland, participation in this system is mandatory, and the accumulated funds can be used not only at retirement but also in certain life situations.

The Swiss three-pillar pension system

The Swiss pension system is built on the concept of three pillars, combining state protection with individual savings.

The first pillar, AHV, provides a basic level of income after retirement. It operates through a pay-as-you-go system financed by contributions from employees and employers.

The second pillar — the occupational pension system, known as BVG — functions as a funded scheme. Contributions paid by employees and employers accumulate in an individual pension account over time.

Together, the first and second pillars are designed to replace approximately 60 percent of a person’s previous income after retirement, allowing individuals to maintain their standard of living.

The third pillar consists of voluntary private savings and serves as an additional layer of financial security.

Who participates in the occupational pension system

Participation in the second pillar is mandatory for most employees if several conditions are met.

First, the person must be insured in the AHV system.

Second, they must be employed under an employment contract.

Third, their annual income must exceed 22,680 Swiss francs.

Coverage for disability and death risks generally begins at the age of 17, while the accumulation of retirement capital usually starts at the age of 25.

Employees with lower incomes or short-term contracts may fall below the mandatory threshold. In such cases, employers may still choose to insure them voluntarily.

Self-employed individuals are not required to participate in the second pillar but may join the system on a voluntary basis.

How contributions to the second pillar are calculated

The second pillar is financed through joint contributions from employees and employers.

In most cases, the contributions are shared equally. Half is paid by the employee and half by the employer. Some employers choose to cover a larger portion.

Employees do not need to make payments themselves. Contributions are automatically deducted from the salary and transferred to the pension fund selected by the employer.

Since pension funds in Switzerland operate independently and set their own regulations, contribution levels and benefits can vary between institutions.

An employee of a small business whose salary contributes to the occupational pension system BVG in Switzerland

Author: Ekaksit A Siam / Source: Shutterstock

What happens to pension savings when changing jobs

In a modern labour market, people often change employers or take breaks from employment. In such cases, pension savings from the second pillar remain protected.

If a person stops working or their income falls below the threshold, the accumulated capital is transferred to a vested benefits account (Freizügigkeitskonto).

This account temporarily holds the pension savings until the person returns to employment.

Once a new job is found, the funds are transferred to the pension fund of the new employer.

If no vested benefits account is opened, the capital is automatically transferred to the national institution Auffangeinrichtung BVG, which safeguards pension assets until the individual provides further instructions.

Can the second pillar pension be increased

The Swiss pension system allows individuals to make additional contributions to their pension fund, often referred to as a pension “buy-in”.

This option can be useful in two situations.

First, when a person has gaps in their contribution history, for example due to studies or periods spent abroad.

Second, when a new employer’s pension fund offers more favourable conditions.

These additional contributions increase the future pension and also offer a tax advantage: the amount paid into the pension fund can be deducted from taxable income.

When the second pillar can be accessed early

Although the primary purpose of the second pillar is to provide retirement income, Swiss law allows access to pension savings in certain situations before retirement.

The most common example is purchasing a home. Pension funds can be used to finance a primary residence, reduce a mortgage or acquire shares in housing cooperatives.

There are restrictions. The property must be the main residence, and withdrawals are limited depending on age.

Another case is starting self-employment. When a person becomes self-employed, they may withdraw their accumulated pension capital.

Early withdrawal is also possible in the case of permanent departure from Switzerland.

The second pillar when moving abroad

The second pillar becomes particularly relevant for foreigners who have worked in Switzerland and later decide to leave the country.

If a person permanently leaves Switzerland, they may withdraw part of their pension savings.

However, there is an important restriction: if the new country of residence is within the EU or EFTA, the mandatory portion of the pension capital must remain in Switzerland until retirement age.

Only the non-mandatory portion of the pension savings can be paid out immediately.

What happens to the second pillar at retirement

Once a person reaches the statutory retirement age — typically 65 years — they can access the capital accumulated in the second pillar.

Most pension funds offer two main options.

The first is a monthly pension annuity.

The second is a lump-sum withdrawal of part or all of the accumulated capital.

Some pension funds allow early retirement from around the age of 58, while others allow payments to be deferred up to age 70 if the person continues working.

The second pillar in family situations

Swiss law also regulates how pension savings are treated in family situations.

In the event of divorce, the pension assets accumulated during the marriage are divided between the spouses.

If the insured person dies, the pension fund may provide survivor’s benefits for a widow or widower, as well as for children.

Children who lose one or both parents are entitled to a survivor’s pension until the age of 18, or until the age of 25 if they are still studying.

Why the second pillar shapes financial security in Switzerland

The second pension pillar plays a crucial role in ensuring financial stability after retirement. It combines mandatory insurance with individual savings, allowing people to build personal pension capital over the course of their working lives.

For many residents of Switzerland, the second pillar represents the largest share of their future retirement income. Understanding how it works — from contributions to withdrawal options — is therefore an essential part of financial literacy for anyone living and working in Switzerland.