Basics of the BVG
Occupational provisions – also known as the 2nd pillar – form one of the three pillars of the pension system in Switzerland. The second pillar guarantees a secure retirement pension and protection in the event of disability or death, and supplements the AHV (old age and surviving dependants) benefits provided under the 1st pillar. The two pillars combined are designed to maintain the accustomed standard of living.
Whether you have to contribute to a pension fund for your employees depends on their salary and age. 2nd pillar contributions become mandatory from a specific entry threshold. On 1 January 2013 this entry threshold was set at an annual salary of CHF 21'060.–.
Occupational pension contributions are paid by both employer and employees. The employer is legally required to pay at least half of the contributions.
Contributions consist of:
- savings contributions for retirement
- risk contributions for disability and death
- cost contributions for administration
The minimum occupational benefits are set by law. However, these minimum benefits are often insufficient to maintain a person's accustomed standard of living, particularly post-retirement.
It is therefore advisable to pay slightly higher savings contributions into the 2nd pillar. Higher contributions – together with the effect of compound interest – will result in better retirement benefits and a better standard of living in retirement.
But what about you? If you registered your company as an AG (public limited company) or GmbH (limited liability company) or if you intend to do so, you are subject to the same obligation to obtain insurance as any other employee. In other words, you are covered just like one of your employees since, from a legal perspective, you draw your salary from the AG or GmbH. So you need to set up a pension solution for yourself in the same way as for your employees.
For all other company types (other than AG and GmbH), you are not subject to mandatory cover under the 2nd pillar. You are only subject to mandatory AHV/IV/EO (old age, disability, lost earnings) contributions – which makes your private pension provision even more important if you want adequate financial security in retirement. At the very least you should consider supplementing your AHV/IV benefits and, if applicable, BVG benefits, with a private 3rd pillar pension solution.
As you can see from the diagram, the AHV/IV (grey) and BVG (orange) together should come to about 60% of the employee's last salary. However, this is often insufficient to maintain the accustomed standard of living. Our recommendation: With Swiss Life Business Direct you can pay slightly higher contributions for correspondingly better benefits.
As a company owner you need to think about how best to insure your employees and yourself. After all, occupational benefits are mandatory.