AHV, BVG and Pillar 3 Explained
Foreign entrepreneurs who establish a company in Switzerland often want to understand the Swiss pension system. However, many founders are not familiar with how the system works.
Therefore, many founders ask the same question:
“If I employ myself in my Swiss company, how does my pension work?”
This question is common among founders from the European Union. In practice, they are used to different pension systems in their home countries.
However, the Swiss pension system works differently. Instead, it is based on the three-pillar model, which combines state pension, occupational pension and private savings.
How the Swiss Pension System Works
The Swiss pension system is built on three pillars. Together, these pillars provide a balanced retirement structure.
- First pillar – AHV: state pension
- Second pillar – BVG: occupational pension fund
- Third pillar – Pillar 3: private retirement savings
Together, these pillars create a stable retirement structure.
For entrepreneurs, all three pillars can play an important role in long-term financial planning.
First Pillar: AHV State Pension
The AHV (Alters- und Hinterlassenenversicherung) forms the foundation of the Swiss pension system.
It provides basic retirement income and is mandatory for everyone working in Switzerland.
Both employees and employers pay contributions. These contributions are calculated as a percentage of salary.
If entrepreneurs employ themselves in their Swiss company, the system works the same way as for any employee.
- The company pays the employer share
- The employee share is deducted from the salary
The AHV pension mainly depends on two factors:
- the number of contribution years
- the average income during those years
For example, a full AHV pension requires 44 contribution years.
However, shorter periods still create pension rights. In that case, the pension is reduced proportionally.
For example, a foreign founder who works in Switzerland for 10 or 15 years will receive a partial Swiss AHV pension later in life.
Second Pillar: BVG Pension Fund
he BVG (Berufliche Vorsorge) represents the second pillar of the Swiss pension system.
Unlike the first pillar (AHV), this system is capital-based.
In practice, both employer and employee contributions accumulate in an individual pension account. A pension fund manages this account.
Employees with salaries above the legal threshold must join a pension fund. Therefore, most Swiss companies affiliate with a pension fund for their staff.
In addition, foreign entrepreneurs can also participate in the BVG system. They simply need to pay themselves a salary from their company.
In that case, they are treated like any other employee in the Swiss pension system.
One important advantage, however, is portability.
For example, if someone leaves Switzerland, the accumulated pension capital is transferred to a vested benefits account (Freizügigkeitskonto).
Therefore, even short working periods in Switzerland can create real retirement capital.
Third Pillar: Private Pension Savings
The third pillar consists of voluntary private retirement savings.
In Switzerland, many entrepreneurs and professionals use this option. The most common solution is Pillar 3a.
Pillar 3a offers tax advantages.
Annual contributions can be deducted from taxable income within certain limits. Therefore, many entrepreneurs use this pillar for both retirement planning and tax optimisation.
For founders who receive a salary from their Swiss company, the third pillar can be an important addition to the Swiss pension system.
Can Foreign Founders Employ Themselves?
Many foreign entrepreneurs are surprised by this. However, founders can employ themselves in their own Swiss company.
In practice, if a founder receives a salary from a Swiss GmbH or AG, they automatically enter the Swiss social security system.
As a result, they contribute to:
- AHV (state pension)
- BVG (pension fund) if their salary exceeds the legal threshold
From a pension perspective, the founder is treated like any other employee.
However, salary planning is important. Therefore, the chosen salary directly affects pension contributions and future retirement benefits.
Example: Pension Contributions
To illustrate how the Swiss pension system works, consider a simplified example.
For instance, a foreign entrepreneur establishes a Swiss GmbH. They employ themselves as managing director with a salary of CHF 120,000 per year.
AHV Contributions
The AHV contribution rate is about 10.6% of salary.
Employer and employee share the contribution equally.
For a salary of CHF 120,000:
Total AHV contribution per year
CHF 12,720
Employer share
CHF 6,360
Employee share
CHF 6,360
These payments build entitlement to the Swiss state pension.
If the entrepreneur contributes for 10 years, they will later receive a proportional AHV pension.
For official information about the Swiss pension system, see the Swiss government guide:
https://www.ch.ch/en/retirement/old-age-pension-ahv/
BVG Pension Contributions
Employees above the BVG threshold must contribute to a pension fund.
The contribution rate depends on age and pension fund plan. For this example, assume a contribution rate of 18%.
With an insured salary of around CHF 90,000, the annual contribution would be approximately:
CHF 16,200 per year
After 10 years, this could result in pension capital of roughly:
CHF 160,000 – CHF 200,000
The capital remains the property of the insured person, even if they leave Switzerland.
Third Pillar Savings
In addition to AHV and BVG, the entrepreneur can contribute to Pillar 3a.
For employees already insured in a pension fund, the maximum annual contribution is about:
CHF 7,000 per year
Over 10 years, this could create savings of approximately:
CHF 70,000 plus investment returns.
Total Pension Assets After 10 Years
In this simplified scenario, the entrepreneur builds several retirement assets.
These include:
- entitlement to a partial AHV pension
- about CHF 160,000–200,000 in BVG pension capital
- around CHF 70,000 in Pillar 3a savings
Therefore, even a relatively short working period in Switzerland can generate meaningful retirement assets.
What Happens to EU Pension Rights?
However, many entrepreneurs worry about pensions earned in other countries.
However, Switzerland participates in the European coordination system for social security.
This system protects pension rights for people who work in multiple countries.
In practice, each country pays a pension for the years worked there.
For example:
- 15 years in Germany
- 10 years in Switzerland
In retirement, the person would normally receive two pensions.
Germany pays the pension based on German contribution years. Switzerland pays the pension based on Swiss contribution years.
Therefore, international careers do not lead to lost pension rights.
Common Mistakes Entrepreneurs Make
In practice, many founders overlook pension planning when they start a company.
One common mistake is not paying themselves a salary.
Without a salary:
- no AHV contributions are paid
- no pension fund contributions are made
- no pension rights are created
Another mistake is ignoring the benefits of the third pillar.
Because pension planning affects taxation and company structure, entrepreneurs should address this topic early.
Switzerland as a Pension Environment
The Swiss pension system is considered one of the most stable in Europe.
In fact, it combines three elements:
- public pension (AHV)
- occupational pension funds (BVG)
- private savings (Pillar 3)
Together, these pillars create a balanced retirement structure.
Therefore, for foreign entrepreneurs who plan to work in Switzerland for several years, participation in the Swiss pension system can provide both security and tax advantages.
However, every situation is different. Ultimately, the best pension structure depends on income, company structure and long-term plans.
If you are planning to establish a company in Switzerland and want to understand how the Swiss pension system applies to your situation, you can contact the SWISS Support team here.
They can assist with company formation, salary structure and pension setup.
