Understanding your 2nd pillar (LPP) in Switzerland

What is the 2nd pillar (LPP)?

The 2nd pillar is mandatory for employees whose annual income exceeds an entry threshold. It is funded by contributions shared between you and your employer, who pays at least half. The self-employed can join voluntarily.

Its purpose: to top up the AVS so that together they cover about 60% of your last salary. For high incomes this rate is lower, which makes the 3rd pillar and optimisations all the more useful.

How your LPP savings build up

Each year, a percentage of your insured salary (the retirement credits) is added to your pension-fund account. This percentage rises with age. Added to it are the employer's contributions and interest.

Your fund sends you an annual pension certificate summarising your accumulated savings, projected pension, available capital and buy-in potential. It is the key document to keep.

Mandatory and extra-mandatory parts

The LPP guarantees a legal minimum on the mandatory insured salary. Beyond that, many funds also insure an extra-mandatory part (higher salaries, improved benefits). These two parts can have different conversion rates.

Understanding the split between mandatory and extra-mandatory helps you anticipate the real amount of your future pension.

The conversion rate

At retirement, your LPP capital is turned into an annual pension via the conversion rate. The legal minimum is 6.8% on the mandatory part: capital of CHF 100,000 gives a pension of about CHF 6,800 per year.

On the extra-mandatory part, the rate is often lower and tends to fall. It is one of the factors that weigh in the pension-versus-lump-sum choice.

Pension, lump sum or both?

At retirement, you can take your 2nd pillar as a lifelong pension, as a one-off lump sum, or as a combination. This often irreversible choice depends on your health, your other income, taxation and your family situation.

It is one of the most important decisions of retirement: we cover it in a dedicated guide.

Optimising your 2nd pillar

Two main levers: buy-ins (voluntary payments that raise your capital and cut your taxes) and, for high earners, the choice of an investment strategy (1e plans). Used well, they improve your pension and your taxation.

RetirePlan folds your 2nd pillar into an overall projection with the AVS and the 3rd pillar, and quantifies the effect of each optimisation.

Frequently asked questions

What is the 2nd pillar (LPP)?

It is the occupational pension, mandatory for employees above an income threshold. It works by capitalisation: savings build up in your name, funded by your contributions, your employer's and interest.

Is the 2nd pillar mandatory?

Yes for employees whose income exceeds the LPP entry threshold. The employer pays at least half of the contributions. The self-employed can join voluntarily.

What is the LPP conversion rate?

It turns your 2nd-pillar capital into an annual pension. The legal minimum is 6.8% on the mandatory part; it is often lower on the extra-mandatory part.

What should I read on my pension certificate?

Your accumulated savings, the projected pension, the capital available at retirement and your buy-in potential. It is the reference document for planning your 2nd pillar.