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Understanding the 2nd pillar (BVG/LPP)

Retirement · April 30, 2026 · 4 min read

The 2nd pillar, or occupational pension (BVG/LPP), is one of the most important pillars of the Swiss retirement system. Mandatory for most employees, it complements AHV to maintain the standard of living at retirement. But how it works is little known: who contributes, how much, how, with what rights? Here is the complete guide to understand and optimise your 2nd pillar.

Understanding the 2nd pillar (BVG/LPP) in Switzerland

Role of the 2nd pillar

The BVG (Federal Act on Occupational Pension) aims to ensure, with AHV, the maintenance of the usual standard of living at retirement. Together, the first two pillars target about 60% of the last salary. The 3rd pillar fills the missing 10 to 20% to reach 70-80%.

Key figures:

  • Total Swiss BVG capital: over CHF 1,200 billion
  • Active insured: over 4.5 million
  • Pension funds: about 1,380 institutions
  • Annual pension payouts: over CHF 35 billion

Who is concerned

The BVG is mandatory for any employee:

  • Aged at least 17
  • Earning more than CHF 22,050/year (2026 threshold)
  • Working for a BVG-subject employer

Self-employed and unemployed are not automatically covered but can opt in voluntarily.

Part-time contracts and temp assignments are also covered if annual salary exceeds the threshold.

The coordinated salary

BVG contributions only apply to a portion of the salary, called the coordinated salary:

  • Coordination deduction: CHF 25,725 in 2026 (= salary covered by AHV)
  • Coordinated salary = AHV salary - coordination deduction
  • Ceiling: max coordinated salary of CHF 64,575 in 2026
  • Minimum: if AHV salary is lower than the deduction, a minimum coordinated salary applies

Example: for an annual salary of CHF 80,000, the coordinated salary is CHF 54,275 (80,000 - 25,725).

It is on this coordinated salary that BVG contributions (employer and employee) are calculated.

Contribution rates by age

Minimum legal BVG contributions (retirement credits) evolve by age bracket:

  • 25-34 years: 7% of coordinated salary
  • 35-44 years: 10%
  • 45-54 years: 15%
  • 55-65 years: 18%

These percentages are split between employer and employee, with the employer paying at least 50%. In practice, good companies pay 60-80% of the contribution, or even 100%.

BVG plans of large companies (banks, multinationals) often provide credits above the legal minimum: up to 25% at 55.

Benefits

BVG covers 4 types of benefits:

  1. Retirement pension: paid from retirement age (65 for men, 64 then 65 for women)
  2. Disability pension: if you become disabled before retirement
  3. Spouse and children's pension: in case of death of the contributor
  4. Death benefit: lump-sum payment to loved ones

The legal conversion rate is 6.8% in 2026 for the mandatory part. This means BVG capital of CHF 500,000 generates an annual pension of CHF 34,000. For the over-mandatory part, each fund sets its own rate (often 5 to 5.5%).

BVG buy-back: tax optimisation

A BVG buy-back consists of paying an additional amount into your pension fund:

  • Possible if there is a gap: if your past contributions are below the maximum plan
  • Fully deductible from taxable income
  • Recoverable as pension or capital at retirement
  • No buy-back if BVG withdrawal in the last 3 years

Buy-back is particularly attractive from age 50-55 with a high marginal tax rate. On a CHF 50,000 buy-back with 35% marginal rate, you immediately save CHF 17,500 in taxes.

Spread buy-backs over several years to optimise the tax benefit.

Early withdrawal for primary residence

You can withdraw or pledge your 2nd pillar to buy your primary residence:

  • Minimum withdrawal: CHF 20,000
  • From age 50, withdrawal is limited to half the available capital or the capital at 50
  • The withdrawal is separately taxed from other income at a reduced rate
  • It decreases your future retirement, disability and survivor pensions

Alternative: pledging the 2nd pillar as mortgage collateral. More cautious as it does not deplete the capital.

When changing jobs

When you change employer:

  • BVG capital is automatically transferred to the new fund
  • If you have no immediate job, your capital goes to a vested benefits account or vested benefits policy
  • You can recover it in case of permanent departure from Switzerland (with restrictions for EU/EFTA countries), starting self-employment or disability

Always check the transfer was made: thousands of Swiss have forgotten BVG assets. The BVG Guarantee Fund centralises orphan accounts.

Choosing and comparing funds

You do not choose your BVG fund (it is imposed by the employer), but you can evaluate it:

  • Coverage ratio: > 110% = solid; < 100% = underfunded
  • Investment performance: 2 to 4% average, but varies strongly
  • Administration fees: between 0.2 and 1% of capital
  • Credits: legal minimum or above?
  • Internal regulations: over-mandatory conversion rate, withdrawal options

A bad fund can shave CHF 100,000-200,000 off your final capital. It is a criterion to consider when changing jobs.

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