The second pillar comprises your occupational benefit scheme, better known as your pension fund. The Act on Occupational Old-Age, Survivors’ and Disability Benefit Plans (LOB) the Act on Accident Insurance (AIA) are the laws under which employers make provision for their employees’ retirement (pension fund) and insure against any occupational and non-occupational accidents.
All employees with income subject to OASI contributions have to be insured in their employer’s pension fund.
In general, you remain actively insured, and thus obliged to pay contributions, until you reach statutory retirement age (as from 2024: uniform reference age of 65 for both men and women). That presupposes you are gainfully employed and earn income that is subject to OASI contributions. If you keep working after reaching statutory retirement age, the pension fund may allow you to continue your insurance until the age of 70, provided you continue to be gainfully employed.
Once you begin drawing a retirement pension, you are no longer an active insured person. In certain circumstances, however, you can continue your insurance if you are 58 years old and receiving a partial pension or lose your job. The individual pension fund’s regulations are decisive here.
If you decide to give up gainful employment, you also lose your right to be insured with a pension fund. The same applies if your employment relationship is terminated and, within one month, you do not start work with a new employer offering a comparable pension fund solution.
The Act on Occupational Old-Age, Survivors’ and Disability Benefit Plans (LOB) sets out the statutory minimum benefits payable by pension funds. These are referred to as mandatory LOB benefits. The Act stipulates, for instance, the annual minimum interest earned on retirement savings and the contributions for retirement credits as a percentage of the insured salary.
Many pension funds offer benefits that go beyond the statutory minimum. These are referred to as supplementary benefits. They can, for example, comprise a higher interest rate on the retirement savings or the insurance of that part of your salary exceeding the insured salary stipulated by law.
Thus, the mandatory component of the pension fund benefit is set by law, but most pension funds offer additional cover in the form of supplementary benefits. Each pension fund’s regulations specify exactly what benefits the fund provides.
Annual retirement credits serve to increase the insured persons’ future retirement savings. These are funded by contributions from employees over the age of 25, which are deducted directly from their salaries. The LOB states the employers must contribute at least the same amount as their employees, but they may pay a higher amount if they wish. Employees often also have the option of voluntarily purchasing benefits to make up any pension shortfalls, improve their benefits or finance early retirement. Again, the corresponding pension fund regulations specify all the contributions and benefits.
Employers must also insure their employees against occupational accidents and pay the corresponding premiums for this cover. If you work more than eight hours a week, you are also insured by law against non-occupational accidents. The contributions for this cover are deducted directly from the employees’ salaries.
Pension funds offer retirement, disability and death benefits. All these are paid out as corresponding pensions and supplement the benefits paid by the first pillar.
As a rule, an LOB disability pension is not paid out until the employee is entitled to an ordinary IV pension from the first pillar. The same general rule applies to widow’s and widower’s pensions, which supplement the corresponding OASI benefits.
Normally, the pension fund begins paying you a lifelong pension when you reach ordinary retirement age. If you retire early, your pension is reduced accordingly. If you continue working beyond ordinary retirement age, your pension is usually proportionately higher.
Alternatively, you can withdraw all or part of your retirement savings as capital, subject to meeting certain time limits. If you do so, however, you will forfeit all or part of the pension paid by your pension fund. What is more, the capital you withdraw is subject to a one-off tax. It is then also up to you manage the capital you withdraw.
Your pension fund’s regulations contain all the information and conditions for early or partial retirement and for capital withdrawals.