The 2nd pillar : BVG

A couple of definitions related to the 2nd pillar

The second pillar, better known as the LPP (the law on occupational old age, survivors' and invalidity benefits) was established between 1974 and 1985. It is a new foundation added to the AVS and, together, the objective shifts from guarantying a minimum income to enabling a "comfortable" income.

The second pillar aims at distributing, with the support of the first pillar, an amount of up to 60% of the last salary received by its insured persons.

As with the first pillar, the BVG is set to support a possible incapacity for work. The occupational pension scheme also provides (knock on wood) insurance in the event of disability and death.

At first glance, it would seem that the AHV and BVG are very similar, sharing the same objectives: to guarantee all insured persons an income at the most appropriate time. Despite these similarities, the main difference between these two pillars lies in the way they are financed. The 2nd pillar is an individual savings plan that is built up from the first days of work and ends when the right to a pension (retirement, disability or death) arises. While you are still running your career, the money set aside by employees and employers is managed by a pension fund, investing your assets in some way to make them grow.

Contributions and LPP certificate

Let’s face it, LPP scheme offers little room for maneuver. It is even rather rigid. In two words, this famous "BVG" law lays down a legal basis that no one can challenge. It forces all employers to respect minimum contributions that vary only according to the age of the worker. The older you are, the more you will contribute to your 2nd pillar. But be careful! This minimum rate, set by law, is not necessarily what you will get! In other words, even if employers cannot pay less than a certain amount, no one prevents them from paying more... And this is one of the reasons why it is crucial to know whether you are employed by a generous company or not.

Where can you find all this information? Quite simply in your occupational benefits certificate, which is usually sent out at the end of each year. It's a document that may seem

boring at first, but it's actually the key to all your questions about your pension, your ability to buy a property and your risk coverage. In a nutshell, it's a very valuable document!

Trust me, dedicating time to understand this document will give you a much clearer picture of your overall financial situation.

2nd pillar withdrawal

A lifetime passes between your first day at work and your retirement. In between, it's easier not to think about it. But I can assure you that one day you will get there, and that is usually when an indecent number of questions come to mind: Can I go into early retirement? Should I take an annuity, a capital sum or a mixture of both? Will I be able to afford to take full advantage of my retirement? Do I have to pay tax on the pension? Or on the capital? Can I leave Switzerland with my 2nd pillar or how can I use these assets to buy a house?

I bet you are reading us because most if not all these questions have already fallen on you, for others it is simply an opportunity to learn more and who knows, perhaps to better prepare for certain future stages of life.

Risk coverage from the 2nd pillar

Once you have your first job and your career is underway, progressing professionally and financially often come as top priorities. No one likes to focus on what could go wrong. But we also know that, unfortunately, life doesn't always work out the way we want it to...

Fortunately, Swiss pension scheme designers have been smart enough to incorporate within each pillar a component not related to retirement but to the risks of life: disability and death. This is a little known but crucial component of our pension system. It allows us, when things don't go exactly as per plan, to support get financial support in order to keep our heads above water.

This famous law, the BVG, obliges all employers to pay a part of their employees' salaries in the form of contributions to enable the pension fund to cover major risks.

And as with pensions, there are minimums that no employer can ignore, and no maximum coverage. Some employers invest far more than the compulsory rate in order to provide their employees with ironclad security.

2nd pillar repurchases

Even if most financial subjects remain taboo in our country today, it is not uncommon to hear colleagues or friends talking about buying back years of LPP. The reason is simple: we all feel that we pay too much tax and seek ways to pay less.

Buying back years of contributions within your 2nd pillar saves you tax, and it works!

In principle, not giving your money to the tax authorities, but saving it to buy your house or to increase your income at retirement age, can't be a bad idea.

However, making buy-backs is not trivial and can have many medium and long-term implications.

And while we all agree that BVG buy-ins are almost always a good idea, I'm sure we can also agree that the timing and amounts can be a game changer.

Before jumping in head first and investing in your pension fund, you need to ask yourself the right questions: How will I get this money back before I retire? What happens if I get married or worse, if my marriage does not survive through years? How will this money be managed? Should I stagger the buybacks? Or buy it all back at once?

Have a look at our article!