Blog, Pensions: 27.10.262nd pillar (LPP): the complete guide to understanding your pension fund in 2026

The 2nd pillar (occupational pension provision, or LPP) is compulsory retirement savings for employees in Switzerland, funded by the employer and the employee, and paid at retirement as a pension, a lump sum or a combination of both.

It is also referred to as the second pillar or the pension fund. The abbreviation LPP refers to the Federal Act on Occupational Old-Age, Survivors’ and Invalidity Pension Provision, in force since 1985.

The 2027 entry threshold and coordination deduction were set by the Federal Council on 2 October 2026. The other 2027 amounts will be confirmed in the official year-end publications. The 2027 minimum interest rate had not yet been decided when this guide was written.

Maintaining your standard of living alongside the AVS

The Swiss pension system rests on three pillars, presented in our article The 3 pillars of the Swiss pension system. The AVS, the 1st pillar, provides everyone with a basic income. On its own, it is not enough to maintain the standard of living of a working person.

The 2nd pillar takes over from there. Together, the AVS and the LPP aim to maintain around 60% of final income for an average salary. The higher the salary, the wider the gap, and it is up to the 3rd pillar to close it.

Capital that belongs to you

The AVS is pay-as-you-go: today’s workers’ contributions directly fund today’s retirees’ pensions. Nobody has an account in their own name.

The 2nd pillar is funded. The simplest way to picture it: a personal savings account, locked until retirement, topped up every month by you and your employer, and earning interest. This account is called your retirement savings. At retirement, it is this capital, and this capital alone, that funds your pension or is paid out to you.

Retirement, disability, death: the three risks covered

The 2nd pillar is not just retirement savings. It covers three situations:

• Retirement: a lifelong pension, a lump sum, or both.
• Disability: a pension from a disability rate of 40%, in addition to the AI pension from the 1st pillar.
• Death before retirement: a surviving spouse’s or registered partner’s pension, at least 60% of the disability pension the insured person would have been entitled to, subject to conditions of age, dependent children or length of marriage; an orphan’s pension of at least 20% of that pension per child, up to age 18, or 25 if in education.

For unmarried couples, nothing is automatic. Many pension funds provide a pension or lump sum for a life partner, under specific conditions: most often several years of living together or a child in common, and prior notification to the fund. Each fund’s regulations set out these conditions and the steps to take.

The entry threshold and what it means for part-time work

You are compulsorily insured under the 2nd pillar if you are an employee and your annual salary with a single employer exceeds CHF 22,680 in 2026.

Cover starts in stages:

• From 1 January following your 17th birthday, you are covered against disability and death.
• From 1 January following your 24th birthday, saving for retirement begins.

The threshold is assessed on the annual salary paid by one employer. A person working 50% and earning CHF 40,000 a year is therefore insured. Another, working 20% for CHF 15,000 a year, is not automatically insured. Many funds, however, insure part-time employees from a salary below the legal minimum: the pension fund regulations say so.

Several employers, short contracts: special cases

If you work for several employers and no single salary exceeds the threshold, you are not automatically insured. Voluntary insurance remains possible in some cases, to be checked with the pension fund of one of your employers or with the Substitute Occupational Benefit Institution.

Employees hired for a period of three months or less are not covered, unless the contract is extended beyond that.

Self-employed: voluntary affiliation

Self-employed people are not compulsorily insured under the 2nd pillar. They can join voluntarily through the pension institution of their professional association, that of their employees, or the Substitute Occupational Benefit Institution.

Without a 2nd pillar, a self-employed person benefits from a much higher pillar 3a cap: 20% of net earned income, up to CHF 36,288 in 2026, compared with CHF 7,258 for an employee affiliated to a pension fund. The choice between voluntary affiliation and an extended pillar 3a depends on income, its regularity and the cover wanted in case of disability or death. Our complete guide to the 3rd pillar explains this lever in detail.

An owner-manager employed by their own SA or Sàrl is not self-employed for social insurance purposes: they are insured under the 2nd pillar like their employees.

The coordinated salary, in three examples

The 2nd pillar does not insure your entire salary, but the coordinated salary: your annual salary minus the coordination deduction, CHF 26,460 in 2026.

Why this deduction? Because the first part of the salary is already covered by the AVS. The LPP takes over above that, so the same part of income is not insured twice.

Coordinated salary = gross annual salary minus CHF 26,460

Two safeguards complete the rule. If the result is below CHF 3,780, the coordinated salary is raised to CHF 3,780. And the legal minimum does not go above CHF 64,260, which corresponds to an annual salary of CHF 90,720.

For Nadia, the part of her salary above CHF 90,720 is not covered by the legal minimum. It is only covered if her company’s pension fund provides broader cover. Many funds also apply a smaller coordination deduction, or none at all, or adjust it to the activity rate for part-time employees. The pension fund regulations are authoritative.

Retirement credits by age

Retirement credits are the amounts credited each year to your retirement savings. They are expressed as a percentage of the coordinated salary and increase with age.

Annual amounts rounded to the franc, calculated on the 2026 legal minimum. At 41, Thomas therefore has at least CHF 5,354 a year credited to his savings. These rates are a floor: many funds provide higher credits, or plans with options that make it possible to save more.

The increase with age has a practical consequence: the 2nd pillar costs more for a 55-year-old employee than for a 30-year-old on the same salary. The early years of a career still matter a great deal, because interest accumulates over a long period.

Who pays what: your share and the employer’s

Contributions fund the retirement credits, but also disability and death cover and the fund’s administrative costs.

The employer must pay at least half of each employee’s contributions. Many go further and cover 60% or more. It is a component of pay in its own right.

The employee’s share is deducted every month on the payslip, usually under “LPP” or “pension fund”. It is fully deductible from taxable income, with no special steps: the amount appears on the annual salary certificate.

Mandatory and extra-mandatory parts: why two funds do not pay the same pension

This is the distinction that explains why two employees on the same salary can have very different 2nd pillars.

The mandatory part is the minimum set by law: coordinated salary up to CHF 64,260, credits of 7% to 18%, minimum interest rate, conversion rate of 6.8%.

The extra-mandatory part is everything the fund offers on top: insuring salary above CHF 90,720, reducing the coordination deduction, providing higher credits. On this part, the fund sets its own rules, including the interest credited and the conversion rate.

Most funds operate an enveloping plan: they manage the mandatory and extra-mandatory parts in a single account, with common rules, while checking that the member always receives at least what the law guarantees on the mandatory part. That is why your pension certificate often shows two amounts: total savings and mandatory LPP savings.

The minimum interest rate

The minimum interest rate is the return the fund must credit at least every year on the mandatory part of your savings. It is set by the Federal Council: 1.25% in 2026.

On the extra-mandatory part, each fund decides freely, depending on its results and financial situation. The interest actually credited therefore varies from one fund to another: it appears in the institution’s annual report and, for you, in how your savings change from one year to the next.

Every year, your pension fund sends you a pension certificate, also called an insurance certificate or LPP certificate. It is the most useful document for understanding your 2nd pillar, and yet one of the most often filed away unread.

Here are its main sections, using the fictitious example of Thomas, 41:

Three items give a first overview: the declared salary, how your savings have changed since the previous year, and the projected pension at 65. Our article on reading a pension certificate goes through each line in detail.

Changing jobs, losing your job: what happens to your 2nd pillar

When you leave a job, your 2nd pillar savings follow you. This amount is called the vested benefit. The rules are set by the Federal Act on Vested Benefits (FZG/LFLP).

Transfer to the new fund

Thomas leaves his employer at the end of March and starts with another on 1 April. He gives his former fund the details of the new one, which appear in the documents provided by his new employer. The savings are transferred and saving continues without interruption. The first certificate from the new fund shows the amount received, which matches the amount announced by the former fund.

The vested benefits account between two jobs

During a break (travel, studies, leave, a period without work), the savings are paid into a vested benefits account or vested benefits policy, with a bank foundation or an insurer. They stay there, locked and earning interest, until your next job or until retirement.

If you lose your job, your savings are placed in a vested benefits account. While you receive unemployment benefits, you remain covered against disability and death, but retirement saving stops. When you start a new job, the savings are transferred to the new fund.

Finding forgotten savings

If you give no instructions when leaving a job, your former fund transfers the savings to the Substitute Occupational Benefit Institution, at the earliest six months and at the latest two years after you leave. The money is not lost, but it is easy to forget after several job changes.

The Central Office for the 2nd Pillar, attached to the LPP Guarantee Fund, helps free of charge to find savings that have been lost track of. This service is particularly useful after a career with many changes of employer.

A buy-in is a voluntary payment into your pension fund to fill the difference between your current savings and what you would have if you had always been insured under your current plan.

Why you may have a pension gap

Gaps often appear after long studies, a period abroad, self-employment, part-time work, a break to look after children, or a sharp salary increase. The maximum buy-in amount appears on your certificate or can be requested from the fund.

A buy-in has two effects:

• It improves your retirement: a higher pension or a larger lump sum.
• It reduces your taxes: the amount is deductible from taxable income in the year of payment, up to the authorised buy-in amount.

Illustrative example. For a person taxed at a marginal rate of 30%, a buy-in of CHF 10,000 reduces that year’s tax by around CHF 3,000. The actual marginal rate depends on income, family situation and municipality.

Tax deduction and the three-year rule

Amounts bought in cannot be withdrawn as a lump sum for three years (art. 79b para. 3 LPP). A lump-sum withdrawal within this period, at retirement or for a property project, can lead to the tax deduction being challenged. That is why a buy-in is usually part of a schedule spanning several years, ahead of retirement or a property project.

Our dedicated article on pillar 2 buy-ins covers the amounts, taxation and the right time to buy in.

At retirement, you receive your 2nd pillar as a lifelong monthly pension, a lump sum paid in one go, or a combination of both.

The conversion rate turns capital into a pension

The conversion rate is the percentage applied to your retirement savings at retirement to calculate your annual pension. It is 6.8% at 65 on the mandatory part.

Example. With retirement savings of CHF 300,000, all of it mandatory, the minimum annual pension is CHF 300,000 x 6.8% = CHF 20,400, or CHF 1,700 per month, for life.

On the extra-mandatory part, the fund applies its own rate, often lower. In an enveloping plan, a single rate applies to all the savings. With a rate of 5.5%, the same CHF 300,000 would give CHF 16,500 a year, or CHF 1,375 per month. The difference is considerable, and it is one of the most telling lines on the certificate as retirement approaches.

Why do funds lower their rates? Because life expectancy is rising and investment returns are not always enough to finance pensions paid for longer.

The rules of the choice

The law guarantees the right to take at least a quarter of the mandatory savings as a lump sum. Many funds allow more, up to the full amount. The request must be made within the period set by the regulations, often several months before the retirement date. Once the pension has started, the choice is final.

From a tax point of view, the lump sum is taxed separately from other income. For direct federal tax, the tax is calculated at one fifth of the ordinary scale (art. 38 DBG/LIFD), and each canton applies its own rules. A federal proposal to increase this taxation was dropped by Parliament in 2026. A pension, on the other hand, is added to taxable income every year.

The factors to take into account

The choice between a pension and a lump sum is personal and depends on several factors:

1. The need for a regular income, once the AVS pension is counted.
2. The family situation, in particular the survivor’s pension provided by the fund for the spouse.
3. Managing capital over twenty or thirty years, with the investments and the risk of running out.
4. The fund’s conversion rate on all the savings.
5. Plans for the capital: repaying a mortgage, a reserve, passing it on.

Mixed solutions are common: a pension to cover regular expenses, a lump sum for a specific project.

Retirement age. The reference age is 65, aligned with the AVS. Depending on the regulations, early retirement is possible from 58, with a reduced pension. If you keep working, deferral is sometimes possible up to 70.

The 2nd pillar is locked until retirement, except in a few situations provided for by law.

Buying your home: what to know before you start

The law allows part of your savings to be used to buy the home you live in yourself. There are two options: early withdrawal, used as equity or to reduce the mortgage, and pledging, used as security with the bank without taking the money out of the fund.

Key points to start with:

• The property must be your main residence.
• A withdrawal must be at least CHF 20,000.
• The amount withdrawn is taxed when it is paid out.
• Your future pension, and often your disability and death benefits, are reduced accordingly.
• If the property is sold, the amount must in principle be repaid to the fund.

This type of transaction is prepared with your fund and your bank, assessing its effect on your retirement and on your family’s protection.

Becoming self-employed or leaving Switzerland permanently

A person starting a self-employed activity as their main occupation can, under certain conditions, withdraw their 2nd pillar savings. Leaving Switzerland permanently can also allow a withdrawal, under rules that depend on the destination country: the fund or vested benefits foundation will tell you what is possible in each case.

The 2nd pillar is also a company obligation. For an SME owner, four points are essential.

1. Join a pension institution. Any employer with employees subject to the LPP must be affiliated to a registered pension institution. Most SMEs join a collective or joint foundation, which brings together many companies, and choose a pension plan suited to their staff. The AVS compensation fund checks this affiliation. Failing that, the employer is automatically affiliated to the Substitute Occupational Benefit Institution, retroactively.

2. Fund at least half of the contributions. The employer’s contribution must be at least equal to the total contributions of its employees. The employer deducts the employee share from the salary and pays the whole amount to the institution: towards the fund, the employer owes all the contributions.

3. Report changes and salaries. Every arrival, departure or salary change must be reported to the fund within the deadlines set by the affiliation agreement. At year end, the employee’s LPP contributions appear on the salary certificate, together with any buy-ins. A mistake at this level directly affects the employee’s tax return.

4. The case of the employed owner-manager. Nadia, employed manager of her Sàrl, is insured like her employees. The company can set up a plan that better covers high salaries, provided it respects the rules on equal treatment between categories of staff. Nadia can also make personal buy-ins, within the limits of her plan.

These obligations come on top of the AVS, AI, APG and unemployment insurance returns. They are part of a company’s day-to-day payroll management, and it is often with arrivals and departures during the year that discrepancies appear.

On 22 September 2024, Swiss voters rejected the LPP reform by 67.13%. Among other things, it would have lowered the minimum conversion rate from 6.8% to 6.0% and changed the coordination deduction (see the Federal Social Insurance Office). In practice, the rules described in this guide remain those that apply: a legal conversion rate of 6.8% on the mandatory part, unchanged credits, and a coordination deduction calculated as before.

This rejection does not freeze your 2nd pillar, however. Funds continue to adjust their conversion rate freely on the extra-mandatory part, and that is where most pension differences arise. For 2027, the entry threshold rises to CHF 23,040 and the coordination deduction to CHF 26,880. The 2027 minimum interest rate has not yet been set: the Federal Council’s decision is expected in November 2026. Your 2027 pension certificate will be the first document to reflect its effect.

The 2nd pillar is therefore more than a deduction on the payslip. It should be read every year, checked at every change of job, topped up with buy-ins when circumstances allow, and decided one last time when choosing between a pension and a lump sum. To complete the picture, the complete guide to the AVS explains the 1st pillar, and our article on occupational pensions in Switzerland looks at the employer’s role.

At Synergix, two separate services can support Swiss SME owners on these topics. Payroll outsourcing covers companies’ day-to-day operations, including the calculation of LPP contributions. Alongside this, for any individual tax question (whether an LPP buy-in makes sense, choosing between a pension and a lump sum, staggering withdrawals at retirement), a specialist from our tax team answers on request. Contact us to discuss it.