BVG/LPP Occupational Pension

What Is BVG/LPP Occupational Pension?

 

In brief: BVG (Berufliche Vorsorge), or LPP in French, is Switzerland’s mandatory second-pillar occupational pension. Employees earning more than CHF 22,680 per year in 2026 must be enrolled in a registered pension fund. Employers and employees both contribute, with savings rates rising by age. At retirement, the capital becomes a pension or lump sum.

 

How BVG/LPP Works?

 

BVG stands for the Federal Act on Occupational Retirement, Survivors’, and Disability Pension Plans (Bundesgesetz uber die berufliche Alters-, Hinterlassenen- und Invalidenvorsorge). The LPP is the French equivalent name. Enacted in 1985, it created Switzerland’s second pillar: a mandatory, employer-organized, fully funded pension system that sits between the state AHV/AVS first pillar and voluntary private savings in the third pillar.

Unlike AHV/AVS, which is pay-as-you-go and pooled, BVG is a funded system. Each employee accumulates savings in their own individual account within a pension fund. The money belongs to the employee and follows them when they change jobs. At retirement, the accumulated capital is converted into a pension using a conversion rate set by the Federal Council, or the employee may withdraw all or part of the capital as a lump sum.

 

The Mandatory vs. Extra-Mandatory Coverage Split

 

The BVG minimum covers only the salary band between the coordination deduction and the upper salary limit. In 2026, that means annual earnings between CHF 26,460 and CHF 90,720, a maximum insured salary of CHF 64,260. Many pension funds insure salary above that band through extra-mandatory plans. Employers comparing funds should separate the legal minimum from any enhancements the fund adds.

 

Pension Fund Affiliation

 

Every employer covered by BVG must affiliate with a registered pension fund (Pensionskasse/caisse de pension). There are hundreds of pension funds in Switzerland, ranging from industry-wide collective funds open to multiple employers to single-employer funds run by large corporations. Small and medium-sized employers typically join a collective foundation operated by an insurance company or a bank. Industry associations also maintain their own funds for member companies.

The employer’s choice of pension fund is a meaningful decision. Funds differ in their contribution rates (above the BVG minimum), investment strategies, conversion rates applied at retirement, administrative fees, and additional insurance benefits. Once affiliated, changing funds requires notice to the current fund and a waiting period, and all employee vested benefits must be transferred correctly.

 

The Three Components of BVG Contributions

 

BVG contributions within each pension fund consist of three parts. The savings component accumulates the retirement capital in the employee’s individual account. The rate is set by the age band and is the figure most employers focus on. The risk premium covers insurance benefits: the fund must provide a disability pension (IV-Rente) for employees who become unable to work, and a survivors’ pension for spouses and children if the employee dies before retirement. The risk premium is set by the pension fund based on actuarial calculations and is separate from the savings rate. Administrative costs cover the fund’s operating expenses and are typically charged as a fixed amount or small percentage on top of savings and risk contributions.

 

 

BVG/LPP Contribution Formulas and Age-Band Rates

 

BVG contributions are calculated on the BVG insured salary, not on total gross salary. The insured salary is derived by subtracting the coordination deduction from gross annual salary and applying a ceiling. The savings rate then depends on the employee’s age band.

 

Key Thresholds

 

BVG Parameter	2026 Value	What It Means
Entry threshold (Eintrittsschwelle)	CHF 22,680/year	Minimum annual salary for mandatory coverage (3/4 of the maximum AHV pension)
Coordination deduction (Koordinationsabzug)	CHF 26,460/year	Subtracted from gross salary to get the insured salary (7/8 of the maximum AHV pension)
Upper salary limit (obere Limite)	CHF 90,720/year	Highest salary counted for mandatory BVG (3x the maximum AHV pension)
Maximum insured salary	CHF 64,260/year	Upper limit minus coordination deduction
Minimum insured salary	CHF 3,780/year	Floor for covered employees (1/8 of the maximum AHV pension)
Minimum interest rate	1.25%	Lowest annual rate credited to mandatory retirement savings; set by the Federal Council
Minimum conversion rate	6.8% at age 65	Converts mandatory capital into an annual pension
Default interest on exit benefits	2.25%	Applies to late transfers (minimum interest rate plus 1 percentage point)

 

Contribution Formulas

 

• Formula 1: BVG Insured Annual Salary

Insured Salary = MIN(Annual Gross, CHF 90,720) – CHF 26,460 If the result is below CHF 3,780, use CHF 3,780 Example 1: gross CHF 120,000. MIN(120,000, 90,720) – 26,460 = CHF 64,260 (CHF 5,355 per month). Example 2: gross CHF 35,000. 35,000 – 26,460 = CHF 8,540 (CHF 711.67 per month). Example 3: gross CHF 24,000, which is above the entry threshold. 24,000 – 26,460 is negative, so the minimum insured salary of CHF 3,780 applies.

• Formula 2: Monthly BVG Savings Credit

Monthly Savings Credit = (Insured Annual Salary / 12) x Age-Band Rate Employer share: at least 50% of the total BVG contribution The employer must contribute at least as much as the employee. Example: insured salary CHF 64,260, age 38 (10% band). Monthly insured salary CHF 5,355. Savings credit CHF 535.50, split CHF 267.75 employee and CHF 267.75 employer at minimum. The minimum employer share applies to the total contribution, including risk premiums.

• Formula 3: Estimated Retirement Capital

Capital = Annual Savings Credit x [((1 + i)^n – 1) / i] i = interest rate, n = years of contributions Simplified illustration with a constant insured salary and a constant 10% rate. Annual credit: CHF 64,260 x 10% = CHF 6,426. Over 20 years at the 1.25% minimum interest rate: CHF 6,426 x 22.56 = about CHF 145,000. Real capital differs because rates rise with age, salaries change, and funds may credit more than the minimum.

• Formula 4: Annual BVG Pension at Retirement

Annual Pension = Mandatory Capital x Conversion Rate (6.8%) The 6.8% minimum conversion rate applies to the mandatory part of the capital at age 65. Example: CHF 145,000 x 6.8% = CHF 9,860 per year, or about CHF 822 per month. Funds usually apply lower rates to extra-mandatory capital. A reform to cut the rate to 6.0% was rejected in a national vote on September 22, 2024, so 6.8% remains the legal minimum.

 

BVG Age-Band Minimum Savings Rates

 

These are the federal minimum rates. Pension funds may apply higher rates in their fund regulations. The employer must always contribute at least as much as the employee.

Age Band	Min Savings Rate	Employee Share	Employer Minimum	Notes
25 to 34	7%	3.5%	At least 3.5%	Accumulation phase begins; lower rate reflects longer time horizon
35 to 44	10%	5%	At least 5%	Mid-career; rate increases as retirement approaches
45 to 54	15%	7.5%	At least 7.5%	Higher accumulation rate; fewer years to retirement
55 to 65 (men) / 64 (women)	18%	9%	At least 9%	Peak savings rate; maximum accumulation before reference age

 

Worked Monthly Example

 

The table applies the formulas to a 38-year-old employee earning CHF 10,000 per month plus a 13th month salary, using 2026 BVG parameters.

BVG Worked Example: Age 38, CHF 10,000 Monthly Base Salary Plus 13th Month (2026)	Employee (CHF)	Employer (CHF)
STEP 1: Check coverage
Annual gross salary (CHF 10,000 x 12 plus 13th month)	130,000
Entry threshold (2026)	22,680
Covered by mandatory BVG?	Yes
STEP 2: Calculate the insured (coordinated) salary
Annual gross, capped at the upper salary limit	90,720
Less coordination deduction	– 26,460
BVG insured annual salary	64,260
Monthly insured salary (64,260 / 12)	5,355.00
STEP 3: Apply the age-band rate (age 38 falls in the 35 to 44 band: 10%)
Total savings credit: 10% x 5,355.00 (split 50/50)	– 267.75	267.75
Risk and admin premium: 1.5% x 5,355.00 = 80.32 (illustrative, split 50/50)	– 40.16	40.16
TOTAL BVG CONTRIBUTION PER SIDE (per month)	– 307.91	307.91
COMBINED MONTHLY BVG COST (employee plus employer)	615.82

Note: Where the BVG insured salary exceeds the mandatory maximum of CHF 88,200/year (as in this example with CHF 130,000 annual gross), the mandatory BVG calculation uses CHF 88,200 as the ceiling for the insured salary, giving a maximum monthly insured salary of CHF 7,350. Savings above this level fall into the extra-mandatory range governed by the specific fund’s plan rules. Risk premiums vary by fund and are not fixed by federal law; the 1.5% used here is indicative.

 

Why BVG/LPP Matters for Swiss Employers?

 

BVG is not an optional employee benefit. It is a mandatory statutory obligation that begins the month after an employee’s earnings cross the entry threshold. Non-compliance creates financial, legal, and reputational risk.

 

Direct Liability for Non-Enrollment

 

An employer who fails to affiliate with a pension fund and enroll eligible employees is deemed to have chosen the Substitute Occupational Benefit Institution (Auffangeinrichtung BVG), a federal safety net fund. The Auffangeinrichtung automatically provides BVG coverage for non-affiliated employers and then invoices the employer for back-contributions with interest and a surcharge. The surcharge can be significant, and the employer loses the ability to choose a preferred fund with competitive rates and benefits.

The BVG supervisory authority, operating through the cantonal supervision authorities and the Federal Social Insurance Office, audits employer pension fund affiliations. Employees also have the right to verify that their employer has enrolled them correctly and that their pension capital is being contributed as required.

 

Total Employment Cost Impact

 

BVG employer contributions add a material cost on top of gross salary. For an employee in the 35-44 age band with a BVG insured salary of CHF 5,000 per month, the employer’s minimum savings contribution alone is CHF 250 per month (5% of CHF 5,000), plus risk premiums and administrative costs, giving a total BVG employer cost of approximately CHF 300 to CHF 400 per month. Across a 50-person team, BVG employer costs alone can total CHF 180,000 to CHF 240,000 per year before AHV, ALV, SUVA, and FAK are added.

 

Employee Retention and Talent Attraction

 

The quality of a company’s pension fund offering materially affects its attractiveness as an employer, particularly for experienced professionals who are actively managing their retirement planning. Employers who offer pension funds with above-minimum contribution rates, strong investment performance, and transparent communication about pension capital balances differentiate themselves in competitive Swiss talent markets. Employees who receive annual pension fund statements showing healthy capital accumulation are more likely to remain with the employer.

 

BVG/LPP in the Swiss Three-Pillar Context

 

BVG is the second of Switzerland’s three pillars of retirement provision. Knowing where it sits helps HR explain the full value of the compensation package.

Pillar	Name	Type	Who Funds It (2026)	Benefit at Retirement
1st Pillar	AHV/AVS (state pension)	Pay-as-you-go; mandatory	Employee 5.3% plus employer 5.3% of gross salary (10.6% combined); no ceiling	Monthly AHV pension based on contribution years and average income
2nd Pillar	BVG/LPP (occupational pension)	Fully funded; mandatory above CHF 22,680/year	Employee and employer, at least 50% from the employer; age-band rates 7% to 18%	Personal capital converted to a pension or taken as a lump sum
3rd Pillar (3a)	Pillar 3a (tax-privileged private savings)	Fully funded; voluntary	Employee only; up to CHF 7,258/year if covered by a pension fund (CHF 36,288 or 20% of net income if not)	Lump sum withdrawn at or shortly before retirement
3rd Pillar (3b)	Pillar 3b (free savings)	Fully funded; voluntary	Employee only; no annual limit	Flexible: insurance, investments, real estate

A common planning target is a retirement income of about 60% of final salary from pillars 1 and 2 combined. For higher earners, AHV replaces a smaller share of income, so pillar 2 capital and pillar 3 savings carry more weight. The first 13th AHV pension payment is scheduled for December 2026. No payroll contribution rate increase to fund it is in force for 2026.

 

BVG/LPP vs. AHV/AVS (1st Pillar)

 

Both are mandatory Swiss contributions deducted from wages, and both fund retirement income. They work very differently.

Dimension	BVG/LPP (2nd Pillar)	AHV/AVS (1st Pillar)
System type	Fully funded: individual savings account	Pay-as-you-go: contributions fund current retirees
Whose money is it?	The employee’s personal capital	Pooled state fund
Earnings ceiling	Yes: salary above CHF 90,720 is not covered by the mandatory minimum	None: applies to the full gross salary
Entry threshold	CHF 22,680/year	None: all employment income is covered
Rate structure	Age-band: 7%, 10%, 15%, 18% of insured salary	Fixed: 5.3% employee plus 5.3% employer = 10.6%
Administered by	Employer-chosen pension fund	Cantonal compensation office (Ausgleichskasse)
Interest on capital	Minimum 1.25% (2026); funds may credit more	None: no individual capital account
Portability on job change	Vested benefit moves to the new employer’s fund or a vested benefits account	Stays with the individual across all employers
Benefit at retirement	Capital converted at 6.8% (mandatory part) or paid as a lump sum	Defined pension based on contribution years and average income
Early withdrawal	Possible for home ownership, self-employment, or leaving Switzerland (strict conditions)	Not possible
Disability cover	Occupational disability pension on top of the IV pension	Basic disability pension through IV

 

Best Practices for BVG/LPP Compliance

 

Affiliate With a Pension Fund Before the First Eligible Hire

 

An employee is covered once annual salary exceeds CHF 22,680, which a full-time employee earning about CHF 1,890 per month reaches immediately. Start the affiliation process four to six weeks before the first hire so the contract, employee data, and contribution setup are ready.

 

Enroll Employees on Time

 

Risk coverage (disability and death) starts on January 1 after the 17th birthday. Savings contributions start on January 1 after the 24th birthday. Enroll each eligible employee from their first month of eligibility. Late enrollment triggers back-contributions with interest.

 

Handle Vested Benefit Transfers Promptly

 

When an employee leaves, the fund calculates their vested benefit (Freizuegigkeitsleistung). It moves to the new employer’s fund or to a vested benefits account. Provide the new payment details quickly. If the transfer is delayed beyond 30 days after the fund receives the necessary details, default interest (2.25% in 2026) applies.

 

Reconcile With the Pension Fund Every Year

 

Compare the fund’s annual employer statement with payroll records for each employee. Resolve differences before year-end so individual statements, and retirement projections, are correct.

 

Update Age Bands Each January

 

An employee who reaches 35, 45, or 55 in a calendar year moves to the next savings rate from January 1 of that year. Update the rate in the payroll system for every affected employee before the first January payroll. Skipping this under-funds savings and shows up in the fund’s reconciliation.

 

How Applic8 Handles BVG/LPP?

 

Applic8 manages BVG/LPP calculations for Swiss employers through As1. The platform stores each employee’s age, salary, and pension fund details, and applies the correct age-band rate. When an employee moves into a new band on January 1, As1 updates the rate automatically.

As1 applies the current-year coordination deduction (CHF 26,460 in 2026), upper salary limit (CHF 90,720), and entry threshold (CHF 22,680) to produce the insured salary. Risk premiums and employer shares are configured per the employer’s fund plan rules.

Monthly remittance reports follow the pension fund’s format, showing insured salary, savings and risk contributions, and the employee and employer shares. When salary changes, As1 recalculates the insured salary from the effective date. For leavers, it generates the vested benefit transfer documentation and tracks the 30-day window. Annual reconciliation exports are produced in the year-end close.

 

 

Frequently Asked Questions About BVG/LPP

 

How are BVG/LPP contributions calculated?

 

First, find the insured salary: cap annual gross salary at CHF 90,720 and subtract the coordination deduction of CHF 26,460 (2026). Second, divide by 12. Third, apply the age-band savings rate: 7% for ages 25 to 34, 10% for 35 to 44, 15% for 45 to 54, and 18% for 55 to 65. The employer must pay at least half of the total contribution, which also includes the fund’s risk premium. Example: gross CHF 120,000 gives an insured salary of CHF 64,260 (CHF 5,355 per month). At age 38 (10%), the savings credit is CHF 535.50 per month, split CHF 267.75 each.

 

What is the difference between BVG/LPP and AHV/AVS?

 

AHV/AVS is the first-pillar state pension. It is pay-as-you-go, applies to all earnings with no ceiling, and costs 10.6% of gross salary in 2026, split 5.3% each between employee and employer. BVG/LPP is the second-pillar occupational pension. It is fully funded, applies only above CHF 22,680 per year, uses age-band rates of 7% to 18% on a capped insured salary, and builds personal capital. AHV goes to the cantonal compensation office. BVG goes to the employer’s pension fund. Both are mandatory and audited by different bodies.

 

What is the BVG coordination deduction and why does it exist?

 

The coordination deduction is CHF 26,460 per year in 2026, equal to 7/8 of the maximum AHV old-age pension. It is subtracted from gross salary before the BVG insured salary is set. It exists because AHV already covers a baseline of income, so BVG focuses on income above that level. The deduction is a fixed amount under the legal minimum, regardless of working percentage, which can leave part-time employees with a low or minimal insured salary. Many pension funds use a pro-rated deduction in their own regulations to improve part-time coverage.

 

What happens to BVG capital when an employee changes jobs?

 

The employee’s vested benefit, meaning accumulated capital plus interest, moves to the new employer’s pension fund. If there is no new employer, it goes to a vested benefits account at a bank or insurer. Delays beyond 30 days after the fund receives the required details attract default interest, 2.25% in 2026. Cash withdrawal is possible only in limited cases: starting self-employment, using the funds for owner-occupied housing, or leaving Switzerland. The mandatory portion generally cannot be paid out in cash when the employee moves to an EU or EFTA country where they remain insured.

 

What is the BVG minimum interest rate for 2026?

 

The Federal Council set the minimum interest rate at 1.25% for 2026, unchanged since 2024. It is the lowest annual rate a pension fund must credit to the mandatory part of an employee’s retirement savings. Funds may credit more and many do, but they cannot go below it. The Federal Council reviews the rate each autumn based on bond yields, equity markets, and the financial health of the system. For comparison, the rate was 4.0% in 1985. It applies only to the mandatory portion, not necessarily to extra-mandatory capital.