Swiss Social Security System: An Intro

This page may contain affiliate links, meaning we receive commissions for purchases made through those links, at no cost to you. Please read our disclosure for more info.

Facebook Swiss Social Security

Have you ever wondered what those deductions are on your pay-slip? Have you ever wondered what would happen to you financially if you had an accident and were not able to work anymore? Or who is going to pay your bills when you retire? The Swiss social security system or is here to answer those questions.

Switzerland has a complex system in place with many different layers and it can be confusing to understand at times, let alone know what to do to optimize your situation financially.

Here we will give an intro to the Swiss Social Security System and try to highlight the aspects that you can optimize from a financial point of view. It is a rather long post, but absolutely essential to understand, especially if you are concerned with your long-term financial health.

Why do we have a Social Security System 

A social security system is a country’s structure in place which takes care of its citizens in case they do not earn an income anymore. In short, if you lose your job, if you have an accident where you become handicapped, if you die or if you retire, then the social security system is here to make sure that you receive some financial support. The structure of how social security is set-up is different from country to country. 

The basic philosophy behind having a social security system is the concept of “solidarity”. 
A country wants to make sure that if you are hit by an unfortunate event, then you can still cover your normal standard of living. 

You could also say it is a mechanism to protect its weakest and most unluckily citizens financially through “solidarity funding” of the entire population. Something “bad” can happen to anyone and therefore social security should be cross-financed by everyone. 

It is important to understand what the structure of your social security system is and what benefits you can get out of it from a financial point of view. You might make short-term decisions which can have a major impact in the long-term. Do not make the mistake of trying to optimise your short-term financial health, when it may create a major financial hole for you in 30 to 40 years.

The General Structure of the Swiss Social Security System

The Swiss Social Security system is split into five areas: 

  • Old-age, survivors’ and invalidity insurance (the three-pillar system)
  • Sickness and accident insurance
  • income compensation allowances in the event of compulsory service or of maternity
  • Unemployment insurance
  • Family allowances

Each area is structured differently and has its own set of rules. We will discuss the mechanisms of all five areas, however we will focus especially on the areas where an individual can actively manage and have an impact on his or her financial situation.

If you want a more comprehensive overview of the Social Security System beyond what is written here, please check out the booklet created by the Swiss government on Social Security in Switzerland.

The Three Pillar System: Old-age, survivors’ and invalidity insurance

The old-age, survivors’ and invalidity insurance is split into three pillars and acts as one of the main cornerstones of the Swiss social security system. These pillars range from mandatory (first pillar) to voluntary (third pillar) and from covering basic living expenses (first pillar) to covering full living expenses (third pillar). The three-pillar system is in place to ensure that you (and your family) are financially secure after retirement and in the case of invalidity.

First Pillar (Old-Age and Survivor’s Insurance)

This pillar aims at covering all expenses needed for your basic livelihood. In terms of old age, an individual can get from a minimum of CHF 1’185 to a maximum of CHF 2’370 per month after retirement age (64 for women, 65 for men). A married couple can receive a combined maximum of CHF 3’555. 

The first pillar also covers a widow’s and widower’s pension, a helplessness allowance in case of injury and a children’s / orphan’s pension, although the rates differ from the old-age pension described above.

The level of pension benefits to be received depend on your earned income and the number of years of payments made to the First Pillar. The more you earn, the more you receive. 

Also, for every year you miss a payment to the First Pillar, your pension will be reducedby 1/44 of the full pension you would normally receive. Therefore, it is crucial to understand how payments to the first pillar are done.

In general, payments to the first pillar are mandatory and represent 4.35% of a person’s salary, no matter the level of income. This is covered half by the employee and half by the employer. It is deducted directly from the employee’s salary and paid by the employer to the government.

The important part is this:

Everyone employed must start paying into the first pillar in the year following their 
17thbirthday. Everyone not employed must start paying into the first pillar in the year following their 20thbirthday.

This means, even if you do not have a salary, you are obliged to pay into the First Pillar, otherwise your pension will be cut short by 1/44 for every year you missed. The level to be paid in this case is set based on your assets. The ranges vary from CHF 409 to CHF 20’450 per year according to the Swiss authorities.

If you miss a year of payment, then you have a maximum of five years to retrospectively pay the missing amount. If you miss this deadline, you will have a gap, no matter whether you want to fill this gap at a later stage or not.

Therefore, my advice is to request from your AHV compensation office an extract of your payments every three years in minimum. This way you will immediately see whether there is a gap and whether you still have enough time to close it.

Second Pillar (Occupational Benefit Plan)

Whereas the First Pillar is here to guarantee your basic livelihood, the Second Pillar aims to cover 60% of a person’s salary directly prior to retirement (incl. pension of the First Pillar).

Every company needs to have a Second Pillar in place. The regulations, pay-outs and contributions vary from system to system. The law sets minimum limits, however individual companies can provide benefits exceeding these minimum limits.

In general, every employee needs to pay into the Second Pillar if their annual salary exceeds CHF 21’330 and employment is above three months. The amount you need to pay varies from company to company. At least half of all contributions in the company needs to be paid by the employer. The employee’s part is automatically deducted from his or her salary and paid by the employer to the government.

When a person reaches retirement age, the general pay-out per year is at minimum 6.8% of the full amount of money paid into the Second Pillar, including the interest the money generated until retirement. 

There are a couple of important things to consider, given the information above:

When you are employed, the employer will pay at least half of your contributions to the Second Pillar. This means you need to understand how much your employer is contributing and how you can maximize it. 

For example, if you earn CHF 75’000 per year and the individual and company contribution rates are both 10%, then you will contribute CHF 7’500 per year and your employer will contribute CHF 7’500 per year. 

In theory, that is 10% additional salary which your employer is paying you. The only difference to your normal salary is that you will only get the money after retirement.

If you suddenly decide to reduce your working hours (e.g. you go from working 100% to 40% working time) and your annual salary drops below CHF 21’330, then your employer is not obliged anymore to pay any contributions to your Second Pillar. It is important to understand that falling below this line of CHF 21’330 means your salary is reduced drastically.

In this scenario, your monthly pay-check will change from your standard salary of 100% to your new salary of 40% and nothing will look amiss. However, you are forfeiting money (and salary), because your employer does not have to pay anything anymore into your pension fund. Your “delayed” salary does not exist anymore.

What can you do? Basically, make sure to discuss this part with your employer. He or she is not obliged to pay any contributions to the Second Pillar, but they still are allowed to. 

This means they can still voluntarily decide to do so. This is important and should be part of your salary negotiations.

For anyone starting a new job, looking at the Second Pillar system of a company and understanding it, is important as well. Let’s do a back-of-the-envelope calculation:

You have job offers from two different companies. Both have the same culture, have offered you the same job and the same salary. The only difference is their Second Pillar. While company A has a company contribution rate of 10%, company B has a contribution rate of 6%. 

At a salary of CHF 75’000, company A will pay CHF 7’500 per year into your Second Pillar. Company B on the other hand would only contribute CHF 4’500 per year. 

Let see what the differences are if we assume that you work at the same company for 30 years, that you receive no salary increases and that 1% of interest is generated on the amounts paid in.

Note: 1% is the minimum amount of interest that needs to be given every year.

After 30 years, Company A would have contributed CHF 225’000 to your second pillar and would have generated an interest of CHF 35’900. This would give you a total of CHF 260’900 which company contributed to your “after retirement salary”.

Company B on the other hand would have only paid in CHF 135’000, which would have generated an interest income of CHF 21’500. In total this would be CHF 156’500.

The difference is a whopping CHF 104’000! In other words, company A is giving you a better salary, purely by having a more attractive pension scheme.

In essence, you could say that company A is giving you a 4% higher salary than company B, just because of the higher contribution rates of the Second Pillar (10% vs 6%). However, the payment will only come after retirement.

Always make sure you understand the structure of your company’s Second Pillar and how to maximise the company contribution rate.

Everyone also has the chance to pay individual contributions to the Second Pillar beyond the individual contribution rate mandated by your institution (up to a pre-defined limit). However, the company only has an obligation to pay the company contribution rate, no matter whether you decide to pay beyond your normal individual contribution rate. If in our example, you decided to work for company A and not just pay the standard contribution of CHF 7’500 to the second pillar, but CHF 15’000, then company A would still only have to pay CHF 7’500.

The reason for paying in beyond your set individual contribution rate is that it is tax deductible. In our example, your taxable salary would not just be reduced by CHF 7’500, but by 
CHF 15’000.

There are two philosophies at play here:

  • Some people say it is best to throw as much money as you can into your Second Pillar to avoid as many taxes as possible. You will still pay taxes on this income when you receive your pension, however these taxes are lower.
  • Some people say it is best to pay only the minimum amount of money into the Second Pillar, pay normal taxes on the rest and invest the money. Why? Because pay-out ratios in the future (aka. the 6.8% per year) are most likely to drop significantly.

This is a matter of personal belief and philosophy. There is no right or wrong way in this regard.

The last two things to remember about the Second Pillar is that you can already access the funds of the second pillar early in case you want to buy real estate (under certain conditions and up to the amount of the vested interest) and that if you are self-employed it is not mandatory to create a second pillar for yourself.

Third Pillar (Linked Individual Provident Measures)

The First and the Second Pillar together aim at covering 60% of your income directly prior to retirement. The Third Pillar helps you maintain your standard of living prior to retirement.

It is completely voluntary and has to be set-up by each person individually. There is no involvement from the employer’s side. A Third Pillar can be set up with a bank or an insurance company, each of which has different Third Pillar structures in place.

Every year a maximum amount as set by the federal government can be paid into the Third Pillar (2020: CHF 6’826 for employed and CHF 34’128 for self-employed). Every person can decide how much they want to pay in. It is important to note that this cannot be done retroactively for past years. 

The amounts paid in are blocked until a so-called “insured event” takes place such as retirement, death or invalidity. There are some exceptions where it can already be released early, such as when purchasing a home or opening one’s own business.

The pay-out can happen either as a lump-sum or in the form of a pension.

The general advice is to create a Third Pillar if you have the necessary funds as it can be deducted from your taxable income and the taxes on pensions are smaller. Most Third Pillars also generate interest which helps you grow your pension even further.

Health Care Insurance

Health care insurance in Switzerland is mandatory for all people with a stay of more than three months and together with the three pillar system is what most people in Switzerland are exposed to in the Swiss social security system. As a rule, companies do not pay for the health care insurance of its employees and every individual is responsible for obtaining his or her own health care insurance themselves.

Health care insurance is divided into two parts: basic insurance and supplementary insurance.

Basic health care insurance covers all the basic needs of a person, including:

  • Diagnosis and treatment of a sickness and its consequences, i.e. examinations, treatment and outpatient or inpatient medical care; 
  • Analyses, medication, agents and items used in examination or treatment, contributions to prescribed hydro-therapy treatments and medical rehabilitation measures; 
  • Transport and rescue costs (contribution of 50 %, transport costs total of 500 Swiss francs and rescue costs total of 5 000 Swiss francs per calendar year); 
  • Certain examinations which come under the heading of preventive medicine, for example for new-born infants and children, or gynaecological examinations; 
  • Maternity services

Basic health care insurance can be obtained from any provider approved by the Swiss Federal Office of Public Health (FOPH) ( Everyone can choose their own provider. If someone fails to take out a health care insurance, the government will assign a provider to the individual and charge them the corresponding fees.

From a cost perspective, the structure of fees for basic health care is the same for all providers, however the amounts to be paid can vary. In general, the structure is as follows:

  • Every month an individual needs to pay a fixed premium to the insurance company. This amount is fixed and has no relation to the level of income of the person.
  • Every person has a so-called deductible (also called “franchise”) of CHF 300. This means that an individual covers the first CHF 300 within a calendar year out of their own pocket, before the insurance company takes over.
  • Even after having gone above CHF 300 per year, a person needs to cover 10% of their medical costs up to a maximum amount of CHF 700 (also called a retention fee).
  • Beyond this, the insurance company covers all costs.
  • If you stay at a hospital, you also need to pay a daily fee of CHF 15, regardless of the deductible and retention fee.

The level of premiums someone must pay depends on the insurance company and the place of residence. On the website www.priminfo.chyou can run through different scenarios to identify the premiums needed to pay.

There are three ways to reduce premiums:

  1. You can increase your deductible of CHF 300. The higher your deductible, the lower your premium is going to be. The levels of deductibles available are CHF 500, 
    CHF 1’000, CHF 1’500, CHF 2’000 and CHF 2’500. Which level to choose is highly dependent on how many medical costs you are likely to have. The less costs you expect, the higher your deductible should be.
  • You can limit your choice of doctor or hospital. Here you have the choice of joining a so-called Health Maintenance Organisation (HMO) or a family-doctor-system. In the first, you commit to only being treated exclusively by a specific group practice of doctors, and in the latter, you commit to always first consult your family doctor who then decides whether a referral to a specialist is necessary. This reduces your premium, but also limits your choice of doctor or hospital. The only carve-out is in the case of emergencies where you can access all standard medical facilities.
  • Some insurances allow you to reduce your premium in case you go a full year without claiming any reimbursement. This is very rare however.

Supplementary health care insurance is voluntary and needs to be purchased by each individual. Different supplementary insurances provide different kinds of services and can include dental services or special treatments.

Disability Insurance

Disability insurance is in place in case someone has an accident and cannot work anymore. The contributions amount to 0.7% of a person’s income and are paid equally by the employer and the employee, regardless of the person’s income level (no upper limit). Self-employed individuals pay 1.4% of their income.

The pay-out is given to anyone who is permanently incapacitated. The level of invalidity depends on the degree of loss of income which in turn then determines how much of an invalidity pension is paid-out:

The minimum and maximum amounts for a full invalidity pension is CHF 1’185 and CHF 2’370 per month. For a couple the maximum amount is a combined CHF 3’555 per month.

The invalidity pension stops when a person reaches the normal retirement age and the old-age pension kicks in.

Service and Maternity Insurance (APG Insurance)

This is insurance to cover the loss of income for both individuals who enter service (such as military, civil service, Red Cross) and women on maternity leave. The employer and employee pay together 0.225% of a person’s salary towards this APG insurance (0.45% for self-employed), regardless of the level of income (no upper limit).

The pay-out for both is 80% of a person’s previous salary, with a maximum pay-out of 
CHF 196 per day. For women to qualify for maternity allowances, they need to have been employed at least five months prior to applying for maternity allowances.

Accident and Occupational Disease Insurance

This insurance aims to compensate for financial loss due to accidents at work and outside of work. The condition is that the person is employed at least eight hours per week by the same employer. 

The cost is split into two parts, where the employer pays a premium for the risk of injury at work and the employee pays a premium for risk of injury outside of work. The contribution is directly deducted from an employee’s salary and paid by the employer to the authorities.

Self-employed are not mandated to pay this insurance, however they are also not covered by it. They have the possibility for paying this insurance on a voluntary basis and thus be part of the scheme.

Premiums vary from company to company (mainly dependent on the industry) and insurance policy to insurance policy.

Unemployment Insurance

This is insurance to cover the case where a person becomes unemployed due to various circumstances such as loss of employment, reduced working hours or insolvency of the employer. Self-employed are not covered in this policy.

The contributions are set at 2.2% of a person’s salary, with each the employer and the employee paying equal parts. The upper limit is an annual salary of CHF 148’200. Any salary above this limit is still subject to a solidarity rate of 1%. 

Pay-out represents 70% of a person’s salary, but can be raised to 80% in case he or she is the caretaker of children under the age of 25 or the daily amount of pay-out is less than CHF 140 per day.

Family Allowances

Raising a family incurs costs and family allowances, together with tax reductions, exist to ease this burden. The contributions to family allowances are mainly paid by employers with varying rates depending on the cantonal stipulations.

The pay-out is at minimum CHF 200 per month for children up to the age of 16 and at least CHF 250 for children under the age of 25 who are still in education. Some cantons even provide birth and adoption allowances.


The Swiss social security system is quite comprehensive and covers many aspects.

The biggest effect someone can have from a financial point of view, is making sure that they understand how to maximize the First, Second and Third Pillar.

For the First Pillar and Second Pillar it is important to make sure that you have no gaps. Further, the different structure of Second Pillars in different companies can make your salary package more or less interesting. The third Pillar is a way to lower your taxes.

Each of the Pillars has its peculiarities and individual posts would be necessary to cover each in depth. Take the time to understand them and implement the strategies which suit your situation best.

Actionable Items

  • Request an extract of your contributions to the first pillar here. If you missed a payment, make sure to fill it if still possible.
  • Review the pension system of your company and make sure that you are maximizing the contributions of your employer.
  • If your salary is below CHF 21’330 discuss with your employer the possibility to still get payments towards your second pillar
  • Open a 3. Pillar.

Which aspects of the Swiss Social Security System do you want to know more about? What is still unclear? What strategies are you following as it relates to your first, second and third pillar?

Let me know in the comments or send me an e-mail at Any questions, concerns, feedback and constructive criticism is highly appreciated.

Leave a Reply

Your email address will not be published. Required fields are marked *