Choosing the Right Pension Fund for Your Company

Occupational pension funds are a critical component of financial security for employees in Switzerland. For businesses who are subject to occupational pension fund obligations, selecting the right fund is not only about fulfilling their legal requirements. It is also an important decision that can impact employee satisfaction, long-term retention, and financial planning.

In this article, we explore the various types of pension funds available to Swiss companies, the benefits and challenges of different solutions, and how businesses can better navigate the process of selecting and managing their pension schemes.

Switzerland’s social security system is based on its three-pillar model, which combines state support (1st Pillar), occupational pensions (2nd Pillar), and private savings (3rd Pillar) to create a multi-layer safety net for its citizens and residents.

Occupational pensions (BVG) play a critical role in supplementing the first pillar (state pensions) and helping employees maintain their standard of living after retirement. In addition to old-age pensions, the BVG also offers benefits for disability and death for the insured person’s dependents.

BVG is mandatory for employees earning over CHF 22,680 annually (as of 2025), and optional for employees earning under this threshold and for self-employed individuals. Employers and employees share the contributions, with employers being legally obliged to contribute at least 50%.

Companies that hire employees for whom the second pillar (occupational pension) is mandatory are required to “set up or join a pension scheme entered in the register of occupational pension schemes” (Article 11, Paragraph 1 of the BVG). Specifically, this means any employer who:

• Employs individuals who are liable to pay AHV contributions, which applies from January 1st of the year after an individual turns 17.
• Pays employees more than CHF 22,680 per year (as of 2025).
• Has employees with indefinite contracts or fixed-term contracts lasting more than 3 months.

The obligation to set up or join a registered pension scheme is monitored by the AHV office, and employers failing to comply may face penalties and increased scrutiny from authorities.

Pension funds operate on shared contributions from both employers and employees, which are invested to generate returns, and in turn provide benefits after retirement or in the case of disability or death. The structure of a pension fund influences how contributions are managed, the level of risk involved, and the potential returns.

Key elements include:

• Contributions: Employers and employees share the cost, with legal minimums set under BVG guidelines.
  Returns: Pension funds must meet a minimum interest rate set annually by the federal government (currently 1.25% as of 2025).
• Benefits: These include retirement income, disability benefits, and survivors’ pensions.
• Portability: Employees’ accrued benefits can be transferred when they change jobs or leave Switzerland.

Fund management models: full insurance vs semi-autonomous solutions

Swiss occupational pension funds typically follow one of two management models, which affect how funds are invested and who bears the investment risk:

Full insurance

With a fully insured pension model, the pension contributions from both the employer and employees are pooled into an insurance product. The insurance company manages the investments and guarantees all benefits, including both the retirement savings and risk-related benefits such as disability and survivors' pensions.

Full insurance solutions offer predictability and security as the employer and employees are not exposed to any of the investment risk. However, they also come with higher costs and lower potential returns. They are best suited for SMEs seeking minimal financial risk and reduced administrative burden.

Semi-autonomous solutions

With a semi-autonomous pension model, the pension fund manages investments independently while only insuring the risk benefit portion (i.e., disability and survivors’ pensions).

This means that the employers and employees are exposed to the investment risk of the retirement capital, but can benefit from greater flexibility, lower costs, and potentially higher returns. As such, semi-autonomous solutions are generally preferred by slightly larger companies with a higher risk tolerance and with an aim to maximize investment return.

Employers choosing between these models should consider risk tolerance, cost efficiency, and long-term financial planning.

Not all pension funds in Switzerland are equal, and choosing the right one is critical for both employers and employees. Here are some key factors to take into consideration when selecting a pension fund for your company:

• Key figures and performance: Compare the different funds’ historical performances, including past returns, funding ratios, and overall financial stability. Most pension providers publish key financial figures, including funding ratios, past returns, and investment strategies.
• Flexibility of plans: Many smaller pension funds only offer standardized plans, but it can be worth looking for pension schemes that allow greater customization. This can include varying contribution rates, investment strategies, early retirement, or additional benefits that better meet your employees’ needs.
• Cost efficiency: Evaluate fees, administrative costs, and any potential costly exit clauses to avoid unnecessary expenses. Choosing the optimal contract duration can also help balance flexibility with cost-effectiveness—longer contracts may offer stability and lower fees, while shorter contracts provide more adaptability to market changes.
• Service levels: Assess the responsiveness and quality of customer service provided by the pension fund, as well as the efficiency of administrative processes for handling claims and inquiries. Consider any additional services offered by the pension fund.
• Compliance and regulations: Ensure that the pension fund complies with all Swiss occupational pension laws and BVG requirements to avoid legal risks and penalties.
• Sustainability and ethical investment: Explore pension funds that prioritize ESG principles, focusing on sustainable and responsible investments that align with your company’s social and environmental values.