Swiss pensions: the three-pillar system explained

The Swiss three-pillar system at a glance

Swiss pension provision is organised into three pillars, each with a distinct role. The 1st pillar (AVS/AHV) secures the subsistence minimum and is mandatory for everyone. The 2nd pillar (LPP) aims to maintain your usual standard of living and is mandatory for employees. The 3rd pillar is optional individual savings that bridge the remaining gap.

The system's goal: the 1st and 2nd pillars together cover about 60% of your last salary; the 3rd pillar helps you get closer to the roughly 80% generally needed to keep your standard of living in retirement.

1st pillar: the AVS/AHV (state provision)

The AVS/AHV (old-age and survivors' insurance) is mandatory and financed on a pay-as-you-go basis: today's workers' contributions pay today's pensions. It covers basic needs. The pension depends on your contribution years and average income; a full pension assumes continuous contributions from age 21.

For 2025, the monthly AVS pension ranges from about CHF 1,260 (minimum) to CHF 2,520 (maximum) for a single person, and is capped at about CHF 3,780 for a married couple. The reference age is 65 (women's age is gradually rising to 65 under the AVS 21 reform).

2nd pillar: the LPP (occupational pension)

The 2nd pillar (LPP) is mandatory for employees earning above an entry threshold. Unlike the AVS, it is funded by capitalisation: your contributions, your employer's and interest build up in a pension-fund account throughout your career.

At retirement, this capital can be taken as a pension, as a lump sum, or as a combination. The pension is calculated by multiplying the capital by the conversion rate (minimum legal rate of 6.8% on the mandatory portion). The pension-versus-lump-sum choice is one of the most important decisions of retirement.

3rd pillar: private provision (3a and 3b)

The 3rd pillar is voluntary retirement saving. Pillar 3a (tied) is tax-advantaged: contributions are deductible from taxable income, up to an annual cap (about CHF 7,056 in 2025 for employees affiliated with a pension fund). Pillar 3b (flexible) is more open but without the same tax benefit.

The 3rd pillar serves to bridge the gap between your AVS + LPP pensions and the standard of living you target. The earlier you start, the more compound interest works in your favour.

How the three pillars complement each other

The 1st and 2nd pillars form the base of your retirement income: together they target about 60% of your last salary for an average income. But this rate falls for high earners, and gaps (missing years, time abroad, part-time work) can reduce it further.

That is where the 3rd pillar comes in — and why doing the calculation matters. Estimating the sum of your three pillars, then comparing it to your retirement budget, is the only way to know whether your standard of living is secured.

Optimising your provision

Several levers can improve your situation: making buy-ins into the 2nd pillar (which raise your capital and cut your taxes), contributing regularly to the 3a, choosing wisely between pension and lump sum, and staggering lump-sum withdrawals to reduce taxation.

These levers interact, and their effect depends on your canton and situation. The RetirePlan tool calculates your three pillars, applies your canton's taxation and quantifies the impact of each optimisation.

Frequently asked questions

What are the 3 pillars in Switzerland?

The 3 pillars are the three sources of Swiss pension provision: the 1st pillar (AVS/AHV, state provision for basic needs), the 2nd pillar (LPP, occupational pension to maintain your standard of living) and the 3rd pillar (private 3a/3b savings, optional).

What is the difference between the 1st, 2nd and 3rd pillar?

The 1st pillar (AVS) is mandatory and pay-as-you-go; it covers the subsistence minimum. The 2nd pillar (LPP) is mandatory for employees and funded by capitalisation; it maintains your standard of living. The 3rd pillar is optional, tax-advantaged individual saving (3a).

Is the 2nd pillar mandatory?

Yes, for employees whose annual income exceeds the LPP entry threshold. The self-employed can join voluntarily. The 1st pillar (AVS) is mandatory for everyone.

How much will I receive in retirement with the three pillars?

The 1st and 2nd pillars together target about 60% of the last salary for an average income; the 3rd pillar helps approach the 80% often needed. The exact amount depends on your career, your pension fund and your canton — a personalised calculation is essential.