The Swiss Pillar System

The Swiss pillar system refers to Switzerland's approach to social security, specifically its pension system. It is designed to provide comprehensive coverage and financial security for individuals during retirement. The system is based on three pillars:

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First Pillar - State Pension (AHV/AVS)

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The first pillar is the state-run pension scheme known as AHV ( Altersund Hinterlassenenversicherung in German) or (Assurance Vieillesse et Survivants in French). It is a pay-as-you-go system, meaning current workers fund the pensions of current retirees through social security contributions. The primary aim is to cover basic living expenses and provide a basic standard of living in retirement. Participation in this system is mandatory for all people living and working in Switzerland.

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Second Pillar - Occupational Pension (BVG/LPP)

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The second pillar is the occupational or company pension plan, known as BVG ( Berufilche Vorsorge in German) or LPP (Prevoyance Professionnelle in French). It is also mandatory for employees, whose employers must contribute to the system. The goal is to allow retirees to maintain their existing standard of living by supplementing the first pillar. Contributions are accumulated in individual accounts and benefits are typically provided as an annuity or lump sum.

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Third Pillar - Private Savings

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The third pillar consists of private savings and is entirely voluntary. This pillar is designed to further enhance retirement income through personal savings plans such as a 3a and 3b accounts, which can offer tax advantages. The third pillar is flexible and can be tailored to individual financial goals and circumstances. It allows individuals to increase their retirement income beyond what is provided by the first and second pillars.

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Together, these pillars aim to provide a comprehensive and sustainable pension system that helps replace a significant portion of an individual's income upon retirement, ensuring financial security in later life.

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