The principles to know for your pension – LPP, 3a, life insurance
Whether you're nearing retirement or starting your career, life can be uncertain and full of challenges at every stage. Fast-paced modern life, a dynamic world of work and an ever-changing social structure require financial planning to secure your future and that of your loved ones.
To quote Benjamin Franklin, “By not preparing, you prepare to fail”.
With this blog post, we help you assess your financial situation in the event of incapacity for work and the protection of your family in the event of death by emphasizing the principles of professional pension (LPP), pillar 3A and life insurance.
Switzerland has a unique pension system which is based on 3 pillars:
- 1er pillar – there state or public welfare,
- 2e pillar – professional pension and
- 3e pillar – private pension provision.
For what purpose? In order to maintain the insured person's previous standard of living at the time of retirement, in the event of disability or death, for themselves or for survivors.
The 2e pillar: occupational pension provision (LPP)
There LPP is carried out through a capitalization system where insurance benefits are co-financed by employees and employers. In essence, the 2e pillar consists of pension funds or company provident insurance which rely on monthly contributions at a legal minimum rate and requires that the employee and employer each contribute equally.
Thus, people not engaged in gainful activity, self-employed workers and workers with a limited-term employment contract of less than three months do not benefit from compulsory insurance.
This pillar offers you solutions such as:
- compulsory occupational pension provision /pension fund (LPP) : In this scheme, benefits are paid in the event of retirement, disability and death.
- compulsory accident insurance (LAA): the LAA helps insure against death or disability following an accident. In this case, benefits are paid through provisions defined by the Federal Accident Insurance Act.
Who is insured in the pension fund?
You can benefit from the LPP if:
- you are at least 17 years old (you can start contributing to the pension fund from the age of 18);
- you are insured under the 1st pillar or old-age and survivors' insurance (AVS)
- you are an employee and you receive at least CHF 21,510 per year until 2022 and CHF 22,050 per year from 2023.
Together, the services of 1er pillar and 2e pillar should provide an annuity that covers approximately 60 to 70% of the last salary received. For additional coverage, professionals can opt for private insurance.
Pillar 3A in the context of private insurance
The 3e pillar allows you to fill the gaps in the income received from the first 2 pillars, often insufficient to maintain a comfortable standard of living. Note that payments on 3e pillar are optional and solutions are offered by Swiss insurance companies and banks, often combined with insurance solutions to cover death and disability risks.
Pillars 3A and 3B – these two models of the 3rd pillar allow you to build your retirement savings optimally.
Our pension advisors can check with you if your pension situation is lacking.
Life insurance
Often underestimated, life insurance is an integral part of 3e pillar and therefore deserves to be part of your financial planning. A distinction is made between:
- pure risk life insurance which includes insurance covering the risks of death and disability, which does not include a savings component and which is only paid in the event of death or incapacity to earn; And
- life insurance constituting capital which is mainly concerned with private old age insurance and paid in the event of benefits or at maturity.
The amount of the payment depends on the conditions of the life insurance.
Insurance can cover individuals for incapacity for work, while families can use it as coverage in the event of death. This solution can also make it possible to fill the gaps in the pensions received from the AVS and the LPP, or even a 3e pillar A (the amounts of which are limited)
As a long-term pension solution, in pillar 3A, the duration of insurance in principle is linked to retirement age. Savings cannot be withdrawn before 5 years of the legal AVS retirement age.
On the other hand, under pillar 3B, the duration of insurance can be determined freely. The standard for the minimum duration for venture life insurance is 5 years and for capital life insurance is 10 years.
The choice of life insurance is very subjective and depends on different factors such as your personal situation, your needs and expectations as well as the products available. The same goes for the cost of insurance. According to our estimates, premiums for capital life insurance can be set from around CHF 100 per month.
As an employee affiliated to a pension fund, you can pay up to CHF 7,056 in pillar 3A life insurance (the maximum monthly premium is around CHF 588). For the self-employed without a pension fund, the ceiling amounts to CHF 35,280 per year (nearly CHF 2,940 per month). On the other hand, pillar 3B premiums are not capped, but also benefit from certain tax advantages depending on the canton.
Tax optimization with 3A
Pillar 3A allows you to reduce your tax burden. You can deduct life insurance premiums directly from your taxable income. However, investing in Pillar 3A involves certain restrictions, including an annual savings limit. Pillar 3B, on the other hand, imposes no restrictions but does not always offer direct tax advantages in terms of premium deductions.
Premiums vary depending on the extent of risk coverage, the insurance company's offering, the investment products available as well as the methods of investing capital (investment in funds composed of bonds and of actions).
LPP, 3A and life insurance can provide the financial security and stability you and your loved ones need. Experts in foresight and wealth planning at Impact FE we can support you in your choice of investments and define a reliable insurance and wealth strategy.
All you need to do is make an appointment with our team of pension advisors. Call us now!
