What can I expect from my second pillar for my retirement?

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Updated on November 30th, 2023.

Let’s take the most common case: you reach 64 or 65 years old, you saved during 40 years. This accumulated capital (that can vary greatly based on the pension fund conditions) bears the sweet name of “retirement assets”. 

Between us, let’s call it a pie. A pumpkin pie since we will enjoy it at the autumn of our lives.  

Each month, we will enjoy a piece of our pumpkin pie. Most of the time, we will not be able to, eat it at once. Pension funds protect us from suffering a terrible indigestion. Thank you pension funds! 

That being said, we may, at this time and legally, take out a fourth of our capital assets and the remaining in the form of a pension. This rule is not always applicable, some pension funds can include in their internal regulation the possibility for their insurees to take out more than a quarter of their capital assets and in certain cases, it is possible to take out the entire amount. 

Be careful: the more the percentage taken out as capital is high, the more the pensions paid will be low. 

How to calculate my second pillar pension? 

Everything stems from your retirement assets: what you saved to your second pillar when you worked.You simply have to take your assets, multiply them by the applicable conversion rate.

How do I calculate my compulsory 2nd pillar pension?

First things first. The easiest way to calculate your pension when you retire is to order your LPP/BVG pension certificate. This document will give you an overview of all the contributions you have made during your career. You therefore have a capital sum that will be converted into a pension from the first month of your retirement.

In this part of the article, we assume that our BVG capital is made up solely of a compulsory portion. To calculate the pension, there’s just one calculation: you take your capital and multiply it by what’s known as the conversion rate. At the end of 2023, the conversion rate will still be 6.8%, but it will fall to 6% once the new reform has been applied. Your pension will therefore be equal to your capital x the rate. No more, no less.

A capital sum of CHF 200,000 will give you a lifetime pension of CHF 200,000 x 0.068 = CHF 13,600 per year.

Diagram of the steps involved in calculating a BVG/LPP 2nd pillar pension

How do I calculate my 2nd pillar pension for the extra compulsory part?

If your income is above 88,200CHF per year, then you enter into the above-mandatory regime we discussed above. The conversion rate is not fixed. It is determined by your pension fund. In other words, each pension fund can decide how much to pay you based on your capital. Conversion rates are generally much lower than for the compulsory part (6%, 5.5% up to 4.8%). This can lead to very wide variations in future pensions with the same capital.

How do I calculate my 2nd pillar pension if my capital is made up of both a compulsory part and a non-compulsory part?

If you’ve understood the previous two paragraphs, then it couldn’t be simpler… It’s a mixture of the two. You will need 4 very precise figures:

  • Capital from your compulsory portion (LPP)
  • Capital from your non-compulsory portion
  • Conversion rate for the compulsory portion: 6.8% (in 2023, this rate will fall to 6%)
  • Conversion rate for the mandatory portion

Let’s take for example and my mother Jacqueline TheBroker, throughout their lives, they dealt with a good pension fund for all that related to savings and managed to set aside on their second pillar the modest sum of 700,000 CHF each. When they retired, they were told that of the 700,000 CHF, 400,000 CHF related to the mandatory part and that the 300,000 CHF remaining came from the over-mandatory part. 

As they did not have the same employer, they did not have the same conversion rate on their over-mandatory part. My mother was lucky enough to get a 6.5% rate, compared to 5% for my father and here is the result: 

Example of the impact of conversion rates on 2nd pillar pensions
Graph showing the impact of conversion rates on 2nd pillar pensions.

Which amounts to a 90,000  difference over 20 years. 

When you retire, your second pillar will be a major part of your income. It is therefore important to pay attention to all these details. 

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