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1. Switzerland’s pension system based on three pillars: Three-pillar principle
The Swiss pension system is based on three pillars, the essential features of which are explained below:
1st pillar – Our State pension (1st pillar)
The state pension is mandatory for all people in gainful employment. It covers the risks of disability and death (due to illness and/or accident), as well as longevity risk. The state pension also covers a mandatory retirement pension. Benefits are calculated on the basis of the average income earned and the number of years that contributions have been paid. However, benefits (in Swiss francs) are capped as follows:
|Disability||CHF 28’680 p.a.|
|Widow(er)’s pension||CHF 22’944 p.a.|
|Child’s pension||CHF 11’472 p.a.|
|Retirement pension single person||CHF 28’680 p.a.|
|Retirement pension married couple||CHF 43’020 p.a.|
The financing system of our State pension is based on a pay-as-you-go basis, what means: Contributions deducted from the income of employed people persons in gainful employment which pay for the benefits received by current disability and retirement pensioners. Contributions deducted from the income of the working population pay for the benefits of current invalidity and retirement pensioners.
2nd pillar – Your Occupational pension
Occupational pension provision is divided roughly into two areas: Accident insurance in accordance with the UVG (Accident Insurance) covers all employed people in Switzerland against the risks of incapacity to work and disability as well as accidental death. The maximum insured salary is CHF 148,200 p.a. (“maximum UVG salary”).
The achievements from the first and second pillar added, cannot exceed 90% of the UVG salary. Contrary the pension fund does not only cover the risks of disability and death due to illness, it also generates your retirement benefits. Your benefits are defined in the pension fund statement and differ depending on the company and the individual insured plan. As a pensioner you have the possibility to withdraw the retirement assets in the form of a monthly pension or as a lump sum payment. (Varies depending on the pension scheme)
The financing system of your second pillar is usually carried out individually, together with your company, which means that you as an insured person build up your retirement assets yourself. The retirement benefits (pension and capital) therefore differ depending on the amount of the contributions and your insured salary. (Declared in your pension fund statement)
3rd pillar – Your private pension provision
The tax-privileged third pillar 3a can be funded using a bank-based solution (Savings 3a account) or an insurance policy 3a and is voluntary.
If you generate income that is subject to pension fund contributions, you have the option of paying the maximum amount of CHF 6,883 per year into your third pillar 3a and deducting it from your taxable income.
If you are not associated with a pension fund, for example because you are self-employed, you can contribute up to 20% of your AHV-liable income into the third pillar 3a - up to a maximum of CHF 34,416 per year. Of course, it is also deductible from your taxable income.
Third pillar outpayments are subject to a one-time capital gains tax. This tax is calculated at a reduced rate and separately from other income. It is important to know, that your assets in the third pillar are not subject to your wealth tax.
2. Type C residence permit and taxes in Switzerland
Being issued with a type C residence permit means changing to regular income and wealth taxation of Switzerland. You are required to file a tax return each year and to declare your previous year’s income and claim certain deductions. These includes, for example, contributions to a third pillar account scheme pillar 3a account and additional voluntary payments into your pension fund (second pillar). You Taxpayers will receive your tax bill directly from the tax authorities. And important to know: Your tax is not automatically deducted from income at source. (Withholding tax)
3. Withholding tax in Switzerland
As an employee, residing in Switzerland, generating an income in Switzerland, you are automatically liable to pay income and wealth tax. Depending on your permit (type B or C) you are either taxed to withholding or to regular income and wealth taxes.
Withholding tax rates vary from canton to canton. The withholding tax is directly deducted from your income. If your income exceeds CHF 120,000 p.a., a regular taxation of income and assets is needed – this means, you have to fill out an official tax return from the canton of Zug.