What is LPP
The Occupational Pension Law (LPP), or 2nd pillar, is mandatory for employees earning > CHF 22,680/yr. It complements AVS to maintain living standards at retirement.
Contributions
Coordinated salary
LPP covers the portion of salary between:
- Coordination deduction: CHF 26,460 (2026)
- LPP cap: CHF 88,200 (2026, 3× max AVS pension)
Managers often benefit from an executive plan extending coverage up to CHF 882,000 or more.
Rates by age (minimum LPP)
- 25–34: 7% of coordinated salary
- 35–44: 10%
- 45–54: 15%
- 55–65: 18%
Contributions 50/50 employer/employee.
Conversion rate
The conversion rate turns LPP capital into annual pension:
- 6.8% (statutory minimum in 2026, being reformed)
- Example: CHF 500,000 capital × 6.8% = CHF 34,000/yr pension
Many funds apply a higher rate (7–8%) on the supra-mandatory portion.
Pension vs capital: the big choice
Pension (lifetime)
- Lifetime income security
- Spouse inherits a survivor pension (60% typically)
- Taxed as income
- No mismanagement risk
Capital (lump sum)
- Freedom of use (investment, real estate, inheritance)
- Taxed once (preferential rate, ~5–15% by canton and amount)
- But risk of poor investment or quick spending
Mixed
- Most common: 50% pension + 50% capital
- Combines security (pension) and flexibility (capital)
- Request at least 3 months before retirement
Comparison
At 6.8% conversion, capital must yield >4–5% real return to match the pension. Hard long-term with conservative investments.
LPP buybacks
Voluntary buybacks in LPP are a powerful tax-optimisation strategy:
- Fully tax-deductible
- Raise capital and thus future pension
- Limit: individual gap (calculated by your fund)
Advantages
- Immediate tax saving: 20–40% of buyback
- LPP capital growth at minimum legal interest rate (1.75% in 2026)
- Capital withdrawal possible after 3 years (except early withdrawal for housing)
Disadvantages
- Capital locked until 60
- Fund risk if technical underfunding
- LPP reform may lower conversion rate
Strategy
- From age 50: buybacks become very interesting (forced, tax-optimised saving)
- Check your fund's health (coverage ratio > 100%)
Early withdrawals
Possible for:
- Primary home purchase (partial or full)
- Self-employment / starting your business
- Permanent departure from Switzerland (EU/EFTA: only supra-mandatory part; non-EU: total withdrawal)
- Lasting disability
Inter-fund transfers
- Changing employer: LPP capital transferred automatically to new fund
- Vested benefits account: if no new job (career gap, self-employment, leaving Switzerland)
- Compare: interest rate, fees, investment options
Executive plans
Managers have access to extended LPP plans:
- Coverage up to CHF 882,000 or more
- Higher contributions (sometimes 25–30% of salary)
- Investment option choices
- Larger capital = more comfortable retirement
Tips
- Compare LPP funds (conversion rate, interest rate, fees, performance)
- Plan pension/capital decision 2–3 years before retirement
- Buy back partially each year from 50 to spread tax saving
- Consult an independent adviser for global estate strategy
- On divorce: LPP is subject to legal sharing, request documentation from separation
