Updated for 2024 to reflect the reform of the pension system that came into force on 1 January 2024. Switzerland will no longer use the term “normal retirement age”, instead, it has been replaced with the term “reference age.”
Wondering, “How does the Swiss pension system work?” is an important question for US expats considering a long-term move to Switzerland.
As a US expat employee, you will have important considerations to keep in mind concerning your long-term financial interests.
In the below article, we dive into the first of a three-part series that breaks down the Swiss Pension System. First up is Pillar 1, or the state pension provision.
The Swiss Pension System: Pillar 1
Pillar 1 is the Swiss State Pension Provision and functions similarly to US Social Security.
Pillar 1 is comprised of three parts:
1. Old-Age and Survivors’ Insurance (OASI, AHV/AVS)
Perhaps the most integral part of the first pillar, the OASI grants pension benefits to those reaching retirement age or the surviving family of an insured person. We will focus primarily on this part throughout the article.
2. Disability Insurance (IV/DI)
Swiss Disability Insurance is available to eligible individuals who are unable to work due to health reasons. Those who qualify may work up to 40% of the ‘standard’ work week and still retain this benefit. However, the amount of benefit received is unique to your specific situation.
3. Supplementary Benefits (EL)
Funded through taxation from the Federal and Cantonal governments, supplementary benefits help fund maternity leave, military pay, and cases where pensions and other income do not cover the minimum cost of living.
Contributing to the Swiss State Pension System
Pillar 1 is a mandatory state pension insurance known as Old Age and Survivor’s Insurance (OASI). Contributions are made by both the employee and the employer. Similarly to US Social Security contributions, OASI contributions are automatically deducted from salary.
Mandatory OASI contributions begin at age 17 (if employed, or 20 if unemployed) and end at full retirement age, 65. As of January 2024, the OASI contribution rate for employed individuals is 8.7%, split between you and your employer.
A key difference of note here: US Social Security contributions are capped with wages above $168,600 (2024). However, there is no wage cap on Pillar 1 contributions in Switzerland. You and your employer will continue to pay on all earned income. However, some income is excluded from this calculation, such as your Swiss family allowance.
Key differences between retirement in Switzerland vs the US
Taxation
The biggest difference between the Swiss and US Social Security systems is taxation during the years of contributions and distributions.
Switzerland: Contributions reduce your income and, therefore, your overall Swiss tax liability. When you retire and receive distributions, they will be fully taxed at your ordinary income tax rate. The applied tax rate is often lower than it would be at the time you made the contributions, as your overall income may be lower in retirement.
United States: Contributions do not reduce your income and, therefore are fully taxable. When you retire and receive distributions, up to 85% of your US distributions may be taxable, leaving 15% or more as tax-free income.
Retirement age
Switzerland: Under the 2024 pension reform, the retirement age is now set at 65 for both men and women. There are transitional provisions for women born between 1961 and 1969.
It will also be helpful to know that the term “retirement age” has been replaced by “reference age” in official retirement resources released by the Swiss state.
In Switzerland, you have the option to receive early distributions up to two years before retirement or defer them for up to five years. Through receiving early distributions, your future benefits will be permanently reduced, while deferring will result in a higher benefit in future years.
Whether you wish to start receiving distributions early, at full retirement age or intend to defer retirement, you must apply to do so.
United States: The US full retirement age has been slowly increasing over the years and currently stands at 67 for both men and women. You have the option to receive early distributions starting at age 62 or defer until age 67. The same rules apply, as early distributions permanently reduce future benefits, and deferring results in a higher future benefit.
It is important to note that if you plan on retiring in the US, you must work there for at least 10 years to be eligible for US Medicare. Otherwise, you must plan to purchase additional health insurance coverage.
Early retirement protocol
Switzerland: Since OASI 21 reform was placed into form on 1 January 2024, Switzerland now offers a more flexible withdrawal of benefits during retirement. You can draw full OASI pension benefits as early as two years before the age of 65. Independently of whether you retire early or at 65, you can draw a portion of your retirement (between 20% and 80%). If you choose to retire more than two years before reaching full retirement age, you will still be required to make AHV/AVS contributions while not employed. The exact amount you need to contribute is uniquely calculated based on your net worth and other income sources.
United States: The minimum contribution period in the US to qualify for distributions is 40 quarters (or 10 years). If you stop working, you are not required to continue making contributions, but your benefits will be reduced when you retire.
Distributions
Switzerland: At present, the minimum Swiss social security annuity is typically CHF 1,225 per month, and the maximum is CHF 2,450 per month. For married couples, the maximum benefit is no more than 150% of the maximum pension.
These distribution amounts are based on “complete contributions.” Complete contributions means you made contributions for the entire contribution period (44 years). For each missed year, there will be a reduction in the distribution.
United States: The maximum amount of Social Security distributions an individual can receive at the current full retirement age (age 67 for anyone born in 1960 or later) is $4,873 in 2024. On average, however, a US retiree will receive just $1,907 per month.
A married couple who both meet the requirements for a maximum distribution does not receive a reduction in the amount received.
US-Swiss Social Security Totalization Treaty
The US and Switzerland have a totalization treaty in place, which is intended to protect individuals who work between the two countries. It allows you (and your employer) to avoid mandatory contributions to both pension systems.
Note: Unfortunately, the scope of the treaty does not include US Medicare coverage, making certain expats in Switzerland liable for Medicare contributions.
If you spent your career working in both the US and Switzerland, there is a high likelihood that your US social security distributions will be reduced. This is due to the Windfall Elimination Provision (WEP). This does not apply to any distributions received through the Swiss pension system, as it is not reduced in this provision.
Calculating Your Distributions
There are various online tools available to assist you in calculating your retirement distributions.
Switzerland’s AHV/AVS Online Pension Calculator: This online calculator will provide a good estimate. If you have worked at least one full year in Switzerland and otherwise qualify, you will not receive a reduction in distributions. You can find the AHV/AVS calculator here.
US Social Security Administration (SSA): If you are in the US or have a valid US address, you can create an ID.me account to view your US Social Security Statement. This statement is helpful for those looking to learn about their future Social Security benefits and earnings history.
Form SSA-7004 "Request for Social Security Statement": If you are living abroad and do not have a US address, you will need to submit the above form to receive your Social Security Statement.
Note: A reduction in US social security distributions due to WEP is not included in the above statement. The Social Security Administration (SSA) provides a WEP Calculator which can help determine this reduction.
Wrapping up: Considerations when evaluating retirement in Switzerland vs the US
Spending your career working in both the US and Switzerland can be extremely rewarding but requires additional planning when it comes to retirement.
Due to the differing contribution periods, Windfall Elimination Provision, and the US-Switzerland Totalization Treaty, there are numerous factors to consider when calculating your expected benefits. Make sure to speak with your financial planner and US tax advisor, as optimization revolves around your unique experiences.
You can read more about the Swiss Pillars in our articles about Swiss Pillar 2 and Swiss Pillar 3.
Meet the Author
Arielle Tucker is a Certified Financial Planner™ and IRS Enrolled Agent with Connected Financial Planning. She's spent over a decade working with US expats on US tax and financial planning issues. She is passionate about working with US expats and their families to help secure a financial future that is reflective of their core values. Arielle grew up in New York and has lived throughout the US, Germany, and Switzerland.
Resources/References
Preparing for Retirement (ch.ch)
Totalization Agreement with Switzerland