The Pillar II is the mandatory occupational pension scheme in Switzerland. It is normally provided by an insurance company, although in some cases a business may manage its own pension scheme and simply outsource the administration. There is no possibility to opt out of a Pillar II as in other countries, however, it does not apply for those earning less than CHF 21,330 per annum.
Contributions are made by both the employee and the employer. Unlike the Pillar I it is very possible that contributions made by each party will be unequal. This is normally due to an employer contributing a larger percentage than the employee, which may be seen as an added incentive when choosing an employer to work for.
Self-employed persons have the right, but not the obligation, to open and make contributions into a Pillar II scheme of their choice.
All contributions into a Pillar II occupational pension scheme are tax deductible. Tax is then charged once you begin to draw benefit in retirement. If you reside in Switzerland this tax rate will be based upon the canton that you live in. If you leave Switzerland the withholding tax rate will be based upon the tax rate of the canton in which the scheme itself is based.
Occupational pension schemes in Switzerland will include added insurances to cover illness, disability and death. These coverages, much like contribution levels, can vary widely between employers and pensions schemes and the details of this coverage can always be found in the scheme particulars. They are also normally shown on any Pillar II valuations.
Unlike the Pillar I, benefits from a Pillar II are not promissory i.e a promise to pay a future pension based on years made contributing into the system, with no guarantee of what that pension amount will be – or even necessarily when it will be paid. Rather, a Pillar II pension is always held in the members name and is made up simply of the joint contributions made (by employee and employer) plus any growth accrued. Thus, it is always possible to see what is in one’s Pillar II account. Benefits may be taken up to five years before retirement age, although this will have a negative impact on the pensionable amount. It is also possible to withdraw Pillar II benefits early if a member leaves Switzerland permanently. However, depending on the country that the member moves to, there could be restrictions on how much of their Pillar II account they are able to take with them. It is also possible to ‘buy ‘back’ missing years from your Pillar II pension. Therefore, as in the Pillar I, you have the ability to close any gaps in your pension. Again, all contributions are tax deductible up to certain limits. It is always suggested to seek advice when buying back years to ensure you make an informed decision before doing so, as conditions may apply.