LPP/BVG: Swiss occupational pension, contributions and benefits

Q: From what salary level is the LPP compulsory?

The LPP is compulsory for employees whose annual salary exceeds the LPP entry threshold (an amount revised periodically by the Federal Council). Contributions are not calculated on the entire gross salary but on the 'co-ordinated salary' — i.e. the annual salary minus a co-ordination deduction. The exact amounts (threshold and deduction) are subject to regular revision.

Q: Who contributes to the LPP: employer or employee?

Both. The law requires the employer to contribute at least as much as the employee. In practice, many pension funds provide rates above the legal minimum, with a higher employer share. Contribution rates vary according to the insured person's age (progressive ageing bonifications) and according to the fund's regulations.

Q: What happens to the LPP if an employee leaves the company?

Upon departure, the accumulated pension capital (vested benefit entitlement) is transferred to the new employer's pension institution. If the employee does not yet have a new job, it is deposited in a vested benefits account with a specialised bank or insurance company. The capital remains locked until retirement, except in special circumstances (purchase of residential property, permanent departure from Switzerland, setting up a business).

Definition

The LPP (Federal Act on Occupational Retirement, Survivors' and Disability Pension Plans, in German BVG) entered into force on 1 January 1985. It constitutes the second pillar of Switzerland's pension system. Combined with OASI (1st pillar), the LPP aims to guarantee insured persons a retirement income representing approximately 60% of their last salary.

How it works

Unlike OASI (a pay-as-you-go system), the LPP operates on individual capitalisation: each insured person's contributions are accumulated in their personal account within a pension fund (pension institution). At retirement, the accumulated capital is converted into a life annuity (or paid out partly as a lump sum, depending on the fund's regulations).

The LPP system comprises two parts:

Mandatory LPP: the minimum benefits defined by law, calculated on the co-ordinated salary.
Supra-mandatory LPP (enveloping): the complementary benefits offered by the pension fund beyond the legal minimum.

Contributions and ageing bonifications

LPP contributions are calculated on the co-ordinated salary (annual gross salary minus a co-ordination deduction, to avoid double funding with OASI). They are expressed as a percentage of the co-ordinated salary and vary according to the insured person's age (ageing bonifications):

Rates increase with age (higher between the ages of 45 and 65 than for those aged 25 to 34).
The employer funds at least half of the contributions.

In addition to retirement cover, the LPP also covers death (spouse's pension, orphan's pension) and disability (LPP disability pension).

Swiss context

The LPP is managed by autonomous pension institutions (pension funds) that invest their insured persons' assets. In the event of insolvency of a fund, the LPP Guarantee Fund (a public law institution) covers the minimum statutory benefits.

The LPP 21 reform aimed at modernising the 2nd pillar (in particular to improve cover for part-time workers and lower-wage earners) was submitted to a popular vote in 2024.

The pension certificate that each insured person receives annually summarises their retirement savings, their insured benefits and their contributions.

How Neoffice handles it

In Neoffice, the LPP parameters (entry threshold, co-ordination deduction, rates by age bracket, employer rates) are configured once per pension fund. The payroll module automatically calculates each employee's contribution according to their age and co-ordinated salary. Statements are generated for the pension fund and integrated into the monthly payslip.