2nd pillar (BVG/LPP): complete guide

The 2nd pillar, or occupational pension (BVG/LPP), is the second tier of the Swiss pension system. Mandatory for employees, it aims to maintain the usual standard of living in retirement, supplementing the AHV/OASI. Understanding how it works is essential to evaluate your 3rd pillar needs and plan your retirement.

How the 2nd pillar works

Capitalization principle

Unlike AHV (pay-as-you-go), the 2nd pillar works on a capitalization basis: each insured person accumulates individual capital that will be paid out as a pension or lump sum at retirement. This capital is managed by the employer's pension fund.

Who is insured?

• Employees earning more than CHF 22,680/year (LPP entry threshold 2026): mandatory insurance
• Self-employed: voluntary affiliation possible
• Employees below the threshold: no obligation, unless the fund regulations are more generous

Insured salary and coordination deduction

The 2nd pillar does not insure the entire salary, as the portion covered by AHV is deducted:

Example: for a gross salary of CHF 80,000, the LPP coordinated salary is CHF 80,000 - CHF 26,460 = CHF 53,540. This is the amount on which mandatory LPP contributions are calculated.

2nd pillar contributions

Contributions are shared between employee and employer (at least 50% borne by the employer). Rates increase with age:

These rates are legal minimums. Many pension funds offer more generous plans (supra-mandatory pension), with higher contributions and benefits.

2nd pillar benefits

At retirement

• Life annuity: your LPP capital is converted into a pension using the conversion rate (legal minimum: 6.8% for the mandatory portion in 2026)
• Lump-sum withdrawal: possible in full or in part, depending on your fund's regulations (advance notice required, often 3 years in advance)
• Mixed solution: combination of annuity + capital

Example: mandatory LPP assets of CHF 400,000 yield an annual pension of CHF 27,200 (6.8%), i.e. CHF 2,267/month.

In case of disability

The 2nd pillar pays a disability pension generally equal to 40-70% of the insured salary, supplementing the DI pension (1st pillar).

In case of death

• Surviving spouse pension: generally 60% of the LPP disability pension
• Orphan's pension: generally 20% of the disability pension per child
• Death capital: according to fund regulations, a lump sum may be paid if there is no entitlement to a pension

Buy-back into the 2nd pillar

The LPP buy-back is a powerful tax optimization tool:

• The buy-back amount is fully deductible from taxable income
• The buy-back potential depends on your contribution years and your pension plan
• Your pension fund can provide a buy-back certificate
• Note: if you make a buy-back, you cannot withdraw LPP capital (EPL) for the following 3 years

The LPP buy-back can be an alternative or complement to the 3rd pillar. For high earners, combining an LPP buy-back with maximum 3a contributions maximizes the total tax deduction.

Limitations of the 2nd pillar and role of the 3rd pillar

The 2nd pillar has several limitations that the 3rd pillar can compensate:

• Capped salary: income above CHF 90,720 is not insured (except supra-mandatory portion)
• Coordination deduction: low salaries and part-time workers are penalized
• Declining conversion rate: future pensions will likely be lower
• No investment freedom: you do not choose how your capital is invested
• Rigidity: strict withdrawal and transfer rules

The 3rd pillar offers more flexibility (choice of provider, strategy, beneficiaries) and a complementary tax advantage (up to CHF 7,258 in additional deductions in 2026).

The importance of supra-mandatory pension

The supra-mandatory (or extra-mandatory) pension is the portion of the 2nd pillar that goes beyond the legal BVG/LPP minimum. Many employers, particularly large companies and public administrations, offer more generous pension plans. Understanding this distinction is essential for properly evaluating your retirement benefits.

What the supra-mandatory portion covers

• Higher insured salary: the coordination deduction can be reduced or eliminated, increasing the insured salary and therefore contributions and benefits
• Higher contribution rates: retirement credits can exceed the legal minimums (7% to 18%), with some funds applying rates of 10% to 25%
• Coverage of high income: income above CHF 90,720 can be insured in the supra-mandatory plan
• Enhanced risk benefits: disability and survivors' pensions higher than the legal minimum

The supra-mandatory conversion rate

Crucial point: the 6.8% conversion rate applies only to the mandatory portion of LPP assets. For the supra-mandatory portion, pension funds are free to set a lower conversion rate, generally between 4.5% and 5.5% in 2026. This means that the pension from the supra-mandatory portion is proportionally lower than that from the mandatory portion.

Some pension funds apply an envelope conversion rate (single rate for both portions), often lower than 6.8%, which is legal as long as minimum LPP benefits are guaranteed. Carefully check your pension certificate to find out the conversion rate applicable to your assets.

Capital or pension: how to decide

The choice between a lump-sum withdrawal and a life annuity is one of the most important financial decisions of your life. Here is an analytical framework to help you decide.

Arguments in favor of the pension

• Lifetime security: the pension is paid until death, regardless of the age reached. You do not risk exhausting your capital
• Simplicity: no need to manage investments or plan progressive withdrawals
• Spouse's pension: in the event of death, your spouse generally receives 60% of your pension
• Protection against oneself: the pension prevents excessive spending or risky investments

Arguments in favor of capital

• Flexibility: you have free access to your capital and can adapt it to your changing needs
• Transferability: remaining capital at death is transferred to your heirs, unlike the pension which ceases
• Potentially advantageous taxation: capital is taxed once (capital benefits tax), then only the return is taxed. The pension is fully taxed each year as income
• Independence from the fund: you are no longer affected by potential conversion rate reductions or financial difficulties of the fund

Decision criteria

The pension is generally preferable if you have a high life expectancy, if you have no experience in wealth management, or if you need a guaranteed income. Capital is more suitable if you have other sources of income (3rd pillar, free assets, real estate), if you have heirs to whom you wish to transfer wealth, or if your pension fund applies a low conversion rate.

To optimize the taxation of your capital withdrawal, coordinate it with the staggered withdrawal of the 3rd pillar and see our page on withdrawal tax.

Coordinating 2nd and 3rd pillar

1. Evaluate your LPP benefits: request your pension certificate from your fund
2. Identify the gaps: compare your projected pensions (AHV + LPP) with your needs
3. Maximize 3a: contribute the maximum deductible amount each year
4. Consider an LPP buy-back: if your fund allows it and if it is tax-advantageous
5. Plan withdrawals: coordinate LPP and 3a withdrawals in different tax years

Evaluate your overall situation with our retirement capital calculator and simulate your 3a contributions with our 3rd pillar calculator.

For a complete analysis of your occupational and individual pension, request a personalized quote. Our partners will help you coordinate your 2nd and 3rd pillars for an optimal retirement.