The Swiss Three-Pillar System: An Overview

The Swiss pension system is based on three pillars, designed to provide comprehensive financial security in your retirement:

1. First Pillar: State Pension (AHV/IV)
   • Goal: To ensure a basic standard of living.
   • Funding: Pay-as-you-go system, where current contributions from workers finance existing pensions.
   • Benefits: Old-age, survivors’, and disability pensions.
2. Second Pillar: Occupational Pension (BVG)
   • Goal: To maintain the standard of living enjoyed prior to retirement.
   • Funding: Capital accumulation system, based on individual contributions.
   • Benefits: Retirement pension or lump-sum payment, as well as protection against disability and death.
3. Third Pillar: Private Pension
   • Goal: To supplement the first and second pillars.
   • Options:
     • Pillar 3a: Tax-advantaged, tied pension savings.
     • Pillar 3b: Flexible private savings.

Lump-Sum Withdrawal vs. Pension Payments of the second pillar

Lump-Sum Withdrawal

Advantages:

• Flexibility in using the capital.
• Opportunity to achieve higher returns through investments.
• Entire remaining capital is inheritable.

Disadvantages:

• Higher risk of depleting the capital prematurely.
• Requires meticulous financial planning and discipline.
• No guaranteed income stream.

Pension Payments

Advantages:

• Lifelong, predictable income stream.
• Security regardless of lifespan.
• No responsibility for managing the assets.

Disadvantages:

• Limited flexibility.
• Little to no inheritance options.
• Risk of lower returns compared to well-managed investments.

Tax Considerations

• Lump-Sum Withdrawal: Subject to a one-time, reduced tax rate; can be optimized through staggered withdrawals.
• Pension Payments: Taxed as regular income; tends to result in a higher tax burden over a lifetime.
• Optimization: Early planning to minimize tax liabilities, such as through staggered withdrawals or choosing an advantageous place of residence.

Smart Investments for Retirement Planning

1. Diversification:
   • Balance between low-risk investments (e.g., bonds) and high-return assets (e.g., equities).
   • Global distribution to reduce market risks.
2. Sustainable Investments:
   • Incorporate ESG (Environmental, Social, and Governance) criteria.
   • Focus on stability and long-term value growth.
3. Risk Management:
   • Maintain a liquidity reserve for unforeseen expenses.
   • Emphasize capital preservation strategies.
4. Continuous Review:
   • Regularly adjust investments to align with personal circumstances and market developments.

What Happens in the Event of Death?

• Lump-Sum Withdrawal: Remaining assets are inherited (e.g., by spouse or children). Consider possible tax implications.
• Pension Payments: Dependent on the pension fund. Typically, reduced survivor benefits are paid to the spouse; no inheritance for children or other heirs possible.

Checklist for Retirement/Early Retirement

1. Asset Analysis: Comprehensive overview of income, expenses, assets, and liabilities.
2. Budget Planning: Realistic estimate of monthly expenses during retirement.
3. Pension Planning: Decide between lump-sum withdrawal and pension payments.
4. Tax Planning: Seek advice to identify tax-efficient solutions.
5. Investment Strategy: Develop a long-term plan for returns and security.
6. Estate Planning: Ensure clear arrangements for asset transfer.
7. Regular Reviews: Make adjustments for changing circumstances.

Baltrag: Your Trusted Wealth Management Partner for a Sustainable Future

With over 40 years of experience, we support you in achieving your financial goals in your well deserved retirement:

• Tailored Solutions: Individualized advice to meet your unique needs.
• Sustainability: Investments that deliver returns while benefiting the environment and society.
• Security: Thoughtful strategies to maintain your standard of living into old age.
• Transparency and Trust: Clear communication and a long-term focus.

Contact us for a non-binding and free of charge first consultation – together, we will shape your financial future!