Switzerland has a very comprehensive social security system that is unique in its kind. The system is based on three “pillars” and each pillar aims to help retired individuals and their immediate family to maintain their accustomed lifestyle. The first pillar, which this article focuses on, contains the Old Age and Survivors/Disability Insurance (OASDI) also known as the Swiss state pension. The second pillar covers the occupational pension scheme (BVG/LPP), and the third pillar covers private pension provisions. Each pillar secures different entitlements and is subject to different regulations.
In addition, employers are obliged to take out a range of insurances for their employees. Some insurance premiums are fully covered by the employer, whereas the employer may ask the employee to contribute to other insurance premiums. Finally, the mandatory Swiss health insurance is a significant cost to a household. The insurance premiums are considered a private cost, rarely covered by the employer.
First pillar – OASDI and its characteristics
The first pillar social security or state pension is often referred to as AHV/ALV in German or AVS/AC in French and is meant to cover the basic needs of an individual and their immediate family. The state pension is set-up as a pay-as-you-go-system meaning that the contributions collected are spent immediately to the current beneficiaries. The first pillar not only includes benefits in cases of retirement and disability, but also compensates loss of income due to compulsory services (military, civil service etc.) or maternity leave. Although it is covered by separate legislation, the first pillar system also includes the mandatory unemployment insurance, ALV/AC. In case someone involuntarily becomes unemployed, the insurance will pay 70% (80% if supported children live in the household) of the insured salary for up to 520 workdays depending on the individuals age and months of contribution made to the ALV/AC. Another 120 days may be added, if the individual is close to the ordinary retirement age (64 for women and 65 for men).
Every individual who resides in Switzerland is required to pay contributions to the OASDI regardless of the employment status. The obligation to contribute starts from the first day of January after the age of 17 is reached for employed individuals. For those who are not employed, the obligation to contribute starts from the first day of January after the age of 20 is reached. Retirement age for women is 64 and for men is 65. You may begin withdrawing old-age pension benefits up to two years prior to official retirement age but you must accept a cut of benefits and you may defer state pension benefits up to five years with a benefit surcharge.
A special rule applies for married couples/individuals in a registered partnership: if only one individual is employed and contributes at least twice the minimum amount, the compulsory contributions for the individual who is not employed are considered included in contributions of the working spouse.
As an employed individual, your entire gross employment income (with a few exceptions) is subject to OASDI contributions. The total contributions are equally split between you and your employer. For 2021, the employee contributions are:
Other mandatory insurances as part of the Swiss social security system
Employed individuals are insured against accidents during and outside of their employment activity. Their employer is required to provide an occupational and non-occupational accident insurance, if the employee is employed for more than 8 hours a week. Contributions for the occupational accident insurance premiums are fully funded by the employer, whereas the premiums for the non-occupational accident insurance may be fully funded by the employee. The contributions depend on the insurance policy and are capped at an insured salary of up to CHF 148’200 (for 2020). The accident insurance usually covers medical expenses, loss of income, disability/survivor’s pension and impairment compensation. A supplementary accident insurance can insure additional benefits or higher salaries.
Daily sickness benefits insurance
The employer is required to continue paying employees their salaries for a certain period during illness according to labour law. Many employers choose to take out a voluntary daily sickness benefits insurance instead that pays their employees 80% of their salaries during extended absences due to sickness for maximum 720 days within 900 consecutive days. The insurance premiums are usually split between employer and employee and depend on the insurance policy.
All residents in Switzerland are obligated to take out a health insurance with an approved Swiss health insurance provider no later than three months after their arrival in Switzerland. The only exception is, when someone is covered in their home country based on a social security treaty.
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Relevant for employees who are resident in Germany and working in Switzerland for a Swiss employer, having the 'executive employee' status.
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