The AVS and its lesser known aspects

The AVS constitutes the basis of the pension system in Switzerland. Any person domiciled in Switzerland or carrying out a gainful activity there contributes between the ages of 21 and 65 (see before or after in the case of paid gainful activity).

The objective of this Newsletter is to provide some useful reminders to our loyal readers by highlighting the different aspects of 1^er pillar which are less known to the population.

Unlimited contributions, capped benefits

Contributions are due on all earned income from the 1st^er frank.

On the other hand, retirement benefits are doubly capped:

1. On the one hand, the maximum old-age pension for a single person reaches CHF 29,400;
2. On the other hand, the couple's pension is capped at 150% of the AVS pension for a single person, or at CHF 44,100.

The AVS is a system of distribution, solidarity, contributions from active people financing retirement pensions.

In this sense, we can argue that the AVS constitutes a real tax, to the extent that any contribution relating to a salary greater than CHF 88,200 no longer improves the pension foreseeable in retirement.

Conditions for granting a full and maximum pension

CHF 29,400 corresponds to an uninterrupted contribution period of 44 years (full pension) and an average annual income over this same period of CHF 88,200 (maximum pension).

One of these two sliders is not reached? Your pension will be reduced for life.

Duration and obligation to contribute

As we saw above, anyone domiciled in Switzerland must contribute to the AVS. Whether she works or not.

In 1^er in this case, she will contribute from her gross salary.

In 2^e in this case, she will have to pay AVS contributions for people without gainful activity until the ordinary retirement age (65) is reached. And that's where the devil is in the details:

1. People who anticipate payment of the AVS pension (maximum 2 years) must continue to pay AVS contributions;
2. Any person who ceases gainful activity before reaching ordinary retirement age must also do so;
3. Part-time activity is sometimes insufficient to free oneself from this obligation.

How are AVS contributions calculated for people without gainful activity?

They are based on the taxable wealth of the person concerned. In terms of taxable wealth, income acquired in the form of an annuity is added (in particular 2^e pillar) multiplied by a factor of 20. Depending on the taxpayer's financial situation, the bill can be steep since it can reach CHF 25,700/year per spouse...

Possibilities of reducing AVS contributions for people without gainful activity?

As a preamble, we note that this obligation continues as long as the person concerned is domiciled in Switzerland and has not reached the age of 65^e birthday.

However, certain situations can be studied and deserve attention:

1. The person plans not to live in Switzerland upon retirement.

Leaving Switzerland frees us from the obligation to contribute to the AVS. However, it must be kept in mind that this will cause a gap in contribution years and that the retirement pension will be reduced by 1/44^e per year of missing contribution.

This can be penalizing for people who should have paid modest contributions, but can prove economically interesting for anyone who contributes a lot. This is a calculation to be made and no ready-made conclusion can be drawn here.

2. Options available for people staying in Switzerland.

Certain avenues of reflection should be explored. Impact Financial Engineering is at your disposal for a personalized study.

The AVS follows its own rules which are often very different from those of 2^e pillar. Everyone has their own situation, projects, motivations and solutions.

However, there is one area that deserves attention because beyond the capped benefits that will be paid by the AVS, the related costs can be very heavy.

At Impact Financial Engineering SA, we address your situation in its entirety. And overall, these issues are carefully addressed and resolved in your sole interest.

 We will guide you independently in the option that suits you best. Do not hesitate to contact us! For more details on our service offering, visit our site at www.impact-fe.ch !