Pension glossary

1e solutions are named after Article 1e Ordinance on Occupational Retirement, Survivors’ and Disability Pension Plans BVV 2/OPP 2. These pension solutions are for people with an AHV/AVS salary amounting to at least 450% of the maximum, individual AHV/AVS pension (2026: CHF 136'080.–). The member can independently select the investment strategy for their accrued 1e retirement savings capital. Each pension fund may offer a maximum of ten different investment strategies, one of which must be low-risk.

The 2nd pillar is a part of the Swiss retirement provision system and covers occupational pension benefits (BVG/LPP). Employees are insured by their employer with a pension fund from a legally defined entry threshold. Together with their employers, they pay monthly contributions to the 2nd pillar/pension fund to receive a pension in retirement. The 2nd pillar is in addition to the federal retirement and survivors’ insurance, AHV/AVS (1st pillar) and enables maintenance of the accustomed standard of living in retirement.

In the 2nd pillar, there is a distinction between pillar 2a (mandatory occupational pension benefits) and pillar 2b (extra-mandatory occupational pension benefits).

The 3rd pillar is a form of private pension provision in Switzerland. It enables people to save a tax-advantaged amount up to a legally stipulated maximum (maximum 3a amount) each year into a tied account or in recognised insurance policies.

The tax-advantaged pillar 3a private pension plan has various solutions. There is a particular distinction between banking and insurance solutions, but sometimes also in more detail between, for example, “savings account solutions” and “investment solutions” or similar.

The maximum contribution for pillar 3a is the legally stipulated maximum amount that a person can pay into pillar 3a per year to benefit from tax advantages. The maximum contributions for pillar 3a are determined annually by the Federal Social Insurance Office (BSV/OFAP).

A distinction is made between gainful employment with pension fund membership (small pillar 3a) and gainful employment without pension fund membership (large pillar 3a).

Gainfully employed persons with a pension fund may pay a maximum of CHF 7'258.– into pillar 3a in 2026. Gainfully employed persons without a pension fund may pay up to CHF 36'288.– in 2026, but no more than 20% of their annual income after deduction of social security benefits (federal retirement and survivors’ insurance, AHV/AVS, federal disability insurance, IV/AI, EO and ALV/UI contributions).

The maximum amounts are determined by the upper limit (2026: CHF 90'720.–). A gainfully employed person with a pension fund may pay in 8% of the upper limit annually and a gainfully employed person without a pension fund may pay in a maximum of 40% of the upper limit annually.

The equity weighting indicates what percentage of a strategy is invested in shares/stocks. In principle, it can be assumed that with a higher equity allocation, the expected return is also likely to be higher. That is contingent on the investor having a corresponding risk tolerance and capacity.

Retirement savings capital is the retirement account of members to finance their pension benefits. Retirement savings capital comprises the vested benefits paid in including interest/return, retirement credits including interest/return and voluntary purchases including interest/return.

The amount credited annually to the retirement savings capital of a member. Set as a percentage of the coordinated annual salary and often depends on the age of the member. The retirement credit is often also referred to as a savings contribution in technical jargon.

The AHV/AVS recognises the split retirement pension. This means that both spouses receive a personal AHV/AVS retirement pension. On the other hand, a pension fund may not divide the retirement benefits, even if the spouses would agree. If the Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG/LPP) were to be amended accordingly, the gender pension gap would be reduced significantly.

Ratio between those aged over 64 and those aged 20 to 64.

The investment horizon is very important when it comes to choosing the investment strategy, or equity weighting. It defines the period of time during which an investor is willing to invest their money. The longer the investment horizon, the greater the degree of fluctuation the investor can generally tolerate and the greater the equity weighting.

In terms of pension provision, the investment horizon generally extends to normal retirement of 65 years for men or 64 years and three months for women. It is possible to determine the investment horizon yourself, i.e. to shorten or extend it.

It is currently possible to extend the investment horizon up to five years after reaching the normal retirement age. However, gainful employment must apply for pillar 3a.

Employers are permitted to set up a contribution reserve for the coming years in their occupational benefits institution. Payments to the employer contribution reserve (ECR) form tax-advantaged expenses within the scope of cantonal regulations (maximum amount and time of payment may vary). The employer contribution reserves (ECR) may typically not exceed three to five times the amount of the annual employer contribution owed.

The Substitute Occupational Benefit Institution is a state-provided occupational benefits institution, which manages the pension fund or vested benefits assets of persons who do not have their own occupational benefits institution.

The termination payment relates to the capital that a member receives from the pension fund upon termination of their employment relationship or self-employment.

A Bel-Etage solution is a management pension plan for managers and skilled workers in which savings contributions are often higher than normal pension fund contributions and employers generally finance more than half of the premiums. Such models are increasingly being offered in the form of 1e pension solutions with a free choice of investment strategy.

The Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG/LPP) governs the 2nd pillar of Swiss retirement provision.

Occupational pension benefits (BVG/LPP) distinguish between mandatory and extra-mandatory pension assets. The BVG/LPP portion quantifies the mandatory pension assets (mandatory contributions under the law) that are accrued with a pension fund.

The funded status of an occupational benefits institution corresponds to the ratio of the pension assets to its obligations. If the obligations of an occupational benefits institution exceed its assets, the occupational benefits institution is underfunded and must be restructured.

Demographic change refers to the development of the population, particularly in terms of age structure. In the Western world, this change is being shaped by the increasing ageing of the population due to low birth rates and rising life expectancy. The consequences include a shortage of skilled workers and an overloading of social insurance systems. This phenomenon is becoming even more acute with the ongoing retirement wave of the baby boomer generation (born 1946-1964).

A custodian account is a repository for securities (bonds, shares/stock, etc.).

Swiss retirement, survivors’ and disability insurance is based on three pillars: state, occupational and private pension provision. The three pillars have different roles and are also regulated differently in terms of benefits and their financing. The first and second pillars are compulsory for most people in Switzerland, while the third pillar is voluntary.

An exchange-traded fund (ETF) is an index fund traded on a stock exchange, which tracks the performance of market indices (e.g. the Swiss Market Index SMI) 1:1. ETFs can be traded during normal stock exchange opening hours.

In a taxation context, a flat rate is a uniform tax rate applied regardless of the level of income or actual expenditure. Some cantons have a “flat rate tax” for income and assets as well as for the withdrawal of pension assets as a lump sum.

Vested benefits institutions are a key component of the Swiss pension system. If you leave a pension fund without reallocating or withdrawing your assets, they park your pension assets in the 2nd pillar. This applies, for example, when changing job or moving abroad. Vested benefits institutions ensure that pension assets are kept secure and continue to be invested in accordance with the law.

Vested benefits are 2nd pillar assets that are transferred to a vested benefit account in the event of a change of employer or in other specific situations (e.g. divorce).

A vested benefit account is an account with a vested benefits institution in which the pension assets can be parked in the 2nd pillar.

The vested benefits are the available vested benefits assets that are transferred to a vested benefits foundation or pension fund.

The gender pension gap corresponds to the difference in retirement benefits between women and men in the permanent resident population aged 65 and over. In this respect, Switzerland ranks first among Europeans. The gender pension gap is particularly pronounced in occupational pension benefits, which are only for gainfully employed persons from a certain income level. Politicians and employers must create new solutions to reduce the gender pension gap.

The large pillar 3a is the pillar 3a of gainfully employed persons not affiliated to a pension fund.

In 2026, the maximum large pillar 3a payment is CHF 36'288.–, provided it does not exceed 20% of annual income after deduction of social security payments (federal retirement and survivors’ insurance, AHV/AVS, federal disability insurance, IV/AI, EO and ALV/UI contributions).

Hybrid working models refer to a mix of self-employed activity and gainful employment. More and more people in Switzerland are applying this model to combine the benefits of both worlds.

Like exchange-traded funds (ETFs), index funds track the performance of indices. However, they cannot be traded during the usual trading hours, but once a day at NAV (net asset value).

If I want to buy an index fund that tracks the SMI at 9 a.m. on 7 January 2026, the relevant purchase price will be calculated based on the stock exchange closing prices on 7 January 2026. So I don’t immediately know my purchase price.

Occupational disability due to health impairment. Federal Disability Insurance (IV/AI) defines disability as an occupational disability or inability to work in the person’s previous occupation or area of responsibility (e.g. household) caused by physical, psychological or mental damage to health.

An investment refers to the investment of money in securities with the aim of achieving a return.

Funding in advance is when each person saves for themselves. The contributions are invested on the capital market and paid out to the insured persons at the end of the insurance period, including interest, as retirement lump-sum capital or a retirement pension. In Switzerland, funding in advance is typically used in occupational pension benefits.

The small pillar 3a refers to pillar 3a of gainfully employed persons affiliated to a pension fund.

Gainfully employed persons with a pension fund may pay a maximum of CHF 7'258.– into pillar 3a in 2026.

This is equivalent to the maximum pillar 3a contribution.

The Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG/LPP) defines the minimum benefits that occupational benefits institutions must guarantee in the event of retirement, death or disability. Deviations from these are allowed, but not to the detriment of the employees. Many employers already offer significantly better insured occupational pension benefits than they are required to by law.

Every year, the Federal Council determines the minimum interest rate for pension assets in the 2nd pillar of mandatory occupational benefits insurance. In 2026, this interest rate is 1.25%. The BVG/LPP minimum interest rate takes into account, among other things, the performance of various investments such as federal bonds, bonds, shares/stocks and real estate. This minimum interest rate does not apply to extra-mandatory pension assets. Each pension fund sets its own interest rate in this area. The amount depends, among other things, on the performance achieved and the funded status of the pension fund.

The maximum insurable AHV/AVS salary is defined as the upper limit. In 2026, the upper limit is CHF 907'200.–.

Normal retirement refers to the time at which a person reaches normal retirement age.

The normal retirement age is the legally defined age at which a person is entitled to a retirement pension under the 1st pillar (federal retirement and survivors’ insurance, AHV/AVS). The normal retirement age for women is currently 64 years and three months and 65 for men.

Occupational pension benefits are referred to in Switzerland as a “pension fund”. These pension funds save funds from which retirement benefits are paid, and pension funds also cover other biometric risks (disability, death). Employers must insure employees in their pension fund from a certain gross annual salary, the BVG/LPP entry threshold of CHF 22'680.– (as at 2026).

Performance refers to the performance of an investment over a specific period of time. It shows whether an investment has made a profit or loss. Either the time-weighted return (TWR) or the money-weighted return (MWR) is used to measure performance

A portfolio is a collection of items of value that an investor owns. It can include different asset classes such as shares/stocks, bonds, real estate and other securities.

Product fees are costs associated with the purchase or sale of investment products.

Withholding taxes are taxes withheld directly from the gross amount by the organisation making payment, which are transferred by the payer to the tax office.

Since 2024, the term “reference age” has been used in Swiss social insurance (in all three pillars). This is synonymous with “retirement age”.

A registered occupational benefits institution is an institution that is recognised by the regulatory authority and offers retirement benefits, such as pension funds.

Risk tolerance refers to the willingness of an investor to take risks in order to potentially achieve higher returns. It is an important factor in determining the appropriate investment strategy.

Risk capacity refers to the ability of an investor to bear financial risks, such as fluctuations in value or losses.

A risk premium must be paid to the pension fund or insurance company for insured risk benefits (disability, death).

In vested benefits, risk protection is insurance coverage that can close any gaps in the insurance cover in the event of death or disability.

Closure means the termination of a business relationship or, in general, the termination of a pension solution and the transfer of funds. In many cases, closure involves the realisation of deferred losses or earnings.

Self-employed persons work under their own name for their own account, are independent and bear their own economic risk. (SECO definition)

The pension assets from the pension fund can be split between a maximum of two vested benefits institutions, provided that this is permitted under the pension fund regulations.

Tax progression means: those who earn more pay higher taxes not only in absolute terms, but also in percentage terms, than those on lower incomes. In Switzerland, progressive income tax rates apply at the federal level and in most cantons, with the progression ending at a certain level of income. The wealth tax rates and the tax rates for the withdrawal of lump-sum benefits from the pension are also progressive in many cantons.

Non-systemic redistribution in occupational benefits refers to a cross-subsidisation between gainfully employed persons and people drawing retirement pensions that is not part of the funding in advance process. It means people in gainful employment must help finance the (excessive) conversion rates for old-age pensioners. This takes the form of a lower interest rate on the pension assets of gainfully employed persons or higher risk premiums.

Partial retirement refers to a gradual transition into retirement by gradually reducing the workload. A growing number of gainfully employed persons in Switzerland are opting for this model. However, partial retirement before reaching retirement age must be well planned to be able to withstand the financial shortfall.

This involves the transfer of actuarial capital from one occupational benefits institution to another.

The extra-mandatory pension assets exceed the statutory mandatory minimum benefits (BVG/LPP portion). The pension assets with a pension fund consist of the BVG/LPP portion and the (if any) extra-mandatory pension assets. Pension funds do not have to grant a statutory minimum interest rate on extra-mandatory pension assets.

In the case of occupational pension benefits, the equal financing of contributions is stipulated by law; employers and employees therefore bear the costs equally. In fact, many employers in Switzerland voluntarily assume more than 50% of the contributions, i.e. they provide disproportionate financing.

In the pay-as-you-go system, the contributions paid in are used directly to fund the benefits for other insured persons. In other words, no assets are saved on a large scale. In Switzerland, we are familiar with the pay-as-you-go system in federal retirement and survivors’ insurance, AHV/AVS.

The Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG/LPP) sets a statutory minimum conversion rate. This stipulates how the retirement lump-sum capital in the mandatory occupational pension scheme is to be converted into a pension at the time of retirement. When the Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG/LPP) was launched in 1985, the conversion rate was 7.2%; today it is 6.8%. On the other hand, in the extra-mandatory area of occupational pensions, each pension fund may set its own conversion rate. Due to the sharp increase in life expectancy, the extra-mandatory conversion rate is usually set much lower than for mandatory coverage.

Administrative expenses refer to the administration costs incurred by the pension foundation.

These are all funds included in the pension cycle of the tied 2nd and 3rd pillars.

A legal entity must join a pension fund of its choice so that employees can be insured under the 2nd pillar. A pension fund can offer its insured persons various pension solutions.

The pension agreement governs the contract details between the pension fund member and the pension foundation.

A WEF (advance withdrawal for the encouragement of home ownership) is an advance withdrawal or the pledging of funds from the 2nd and/or 3rd pillar for financing owner-occupied properties.

When moving abroad, the available actuarial capital can be withdrawn in whole or in part. For the 2nd pillar, it matters whether someone goes outside the EU/EFTA area.

Continued employment means that a person continues to work in gainful employment or self-employment after reaching the normal retirement age. In such a case, further 3a contributions can be accumulated.

Securities are financial products. The best-known securities are funds, shares/stock and bonds.

Impairment refers to the decline in the value of an asset.

The time value account is intended to finance special phases of life. Employees can – in consultation with their employer – pay contractual overtime, unused holidays or even part of their income into the time value account. The savings can then be used for continuing education and training, parental leave, parental care or a sabbatical. Taxation occurs only when credit is withdrawn. The time value account has been established in Germany for many years and is very popular among employees.