What does LPP cover
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What Is LPP? Your Simple Guide to Switzerland’s 2nd Pillar (2025)
Simple guide to Switzerland's 2nd Pillar (LPP) in 2025. Learn about mandatory contributions, coordinated salary, early withdrawal rules, and key changes.
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Introduction
Understanding the LPP (2nd Pillar) is essential for anyone working in Switzerland. As a mandatory part of the Swiss pension system, it ensures you can maintain your quality of life after retirement. Still, the LPP can feel complicated. Coordinated salaries, legal interest rates, and age-based contributions often leave people unsure of how their pension fund actually works.
This guide simplifies the LPP for 2025, explaining who must contribute, how calculations are made, and what benefits you can expect, so you can plan your financial future with clarity and confidence. For comprehensive support on all things related to Swiss finance, always seek professional financial advice.
What Is LPP?
The LPP (BVG in German) is the legal framework behind Switzerland’s 2nd Pillar, the occupational pension that complements state benefits. It doesn’t refer to one specific fund, but to the minimum standards every registered pension fund must follow. Its purpose is simple: to help employees maintain their standard of living after retirement or protect them in cases of disability or death.
Switzerland’s retirement model is built on three layers:
- Pillar 1 (AHV/AVS): State pension covering basic needs.
- Pillar 2 (LPP/BVG): Mandatory occupational pension for most employees, designed to maintain your previous lifestyle.
- Pillar 3: Voluntary private savings that close any remaining gaps.
The LPP also differs from many international systems. While several countries rely on pay-as-you-go models where current workers fund current retirees, Switzerland’s 2nd Pillar is fully funded. Your contributions, together with your employer’s, are invested directly into your individual pension capital. Mechanisms such as the coordination deduction help ensure that Pillar 1 and Pillar 2 do not overlap on the same portion of income.
In 2025, the LPP remains essential for anyone working in Switzerland. Employees build tax-advantaged retirement savings, employers must enroll staff and cover at least half of the contributions, and self-employed workers can join voluntarily to gain protection and grow their pension capital efficiently.
What Does LPP Cover?
The LPP system provides comprehensive coverage that extends beyond just retirement savings:
1. Retirement savings & pension accumulation
The majority of LPP contributions are dedicated to savings credits, which accumulate in your individual retirement account. This capital is guaranteed a minimum legal interest rate (1.25% in 2025 for the mandatory portion) and forms the basis of your retirement income.
2. Disability insurance & income protection
In the event of long-term illness or disability, the LPP provides a disability pension. Crucially, in many plans, if you become disabled, the pension fund waives the future contribution requirement while continuing to credit notional savings into your account until retirement age, ensuring your retirement capital is not impacted.
3. Survivor benefits for spouse, partner & children
If an insured person dies, the LPP provides financial support for surviving dependents, typically in the form of a widow's/widower's pension and orphan's pensions for children.
4. Lump-sum vs. lifetime annuity payout options
Upon retirement, you typically have two main payout options:
- Lifetime annuity (Pension): Your capital is converted into a monthly income using a legal conversion rate (currently 6.8% for the mandatory portion).
- Lump-sum withdrawal: You can often withdraw a portion (or sometimes 100%, depending on the fund's regulations) of your accumulated capital in a single payment. This is subject to separate, reduced taxation.
How the Swiss LPP Pension Fund Works
How do pension funds operate?
Swiss employers must affiliate with a pension fund that collects and invests contributions, manages disability and survivor coverage, and pays out retirement benefits. These funds are jointly supervised by employer and employee representatives.
How is the coordinated salary calculated?
The coordinated salary is the portion of income used to calculate LPP contributions. It is determined by subtracting the coordination deduction from your annual salary, so you do not contribute to income already insured under Pillar 1. In 2025, the entry threshold is CHF 22,680, the coordination deduction is CHF 26,460, and the maximum mandatory insured salary is CHF 90,720.
How do mandatory and extra-mandatory coverage differ?
Mandatory coverage ensures the coordinated salary up to CHF 64,260 in 2025. Many pension funds extend benefits by covering higher income levels or adjusting the coordination deduction, giving employees larger savings through extra-mandatory plans.
How are employer and employee contributions shared?
LPP contributions are divided between employers and employees. Employers must cover at least half of the total amount, though many contribute more to strengthen their benefits offering.
How is interest credited to your pension savings?
Pension funds must credit mandatory retirement capital with a minimum interest rate set by the Federal Council. For 2025, the rate remains 1.25 percent, with any extra returns depending on the fund’s performance.
Who Must Pay Into the LPP in Switzerland?
Who must pay into the LPP in Switzerland
Employees
LPP affiliation is mandatory for any employee who meets all of the following criteria:
- Subject to AHV/AVS (aged 17 or over).
- Has an employment contract lasting longer than three months (or without a fixed term).
- Earns an annual salary above the mandatory Entry Threshold of CHF 22,680 (in 2025).
Note: Coverage for disability and death risks starts from age 17, while savings credits start accruing from January 1st following the employee’s 24th birthday.
Employers
Every employer must enroll their eligible employees in a registered pension fund. Their key duties include:
- Paying premiums on time.
- Deducting the employee's share from the gross salary.
- Covering at least 50% of the total contribution.
Self-employed
The self-employed are not mandatorily affiliated. However, they can opt for voluntary LPP participation through their industry’s collective foundation or the Substitute Occupational Benefit Institution, offering access to the same risk protection and tax advantages as employees.
Foreign workers and expatriates
Foreign workers are subject to the same LPP rules as Swiss nationals if they meet the mandatory criteria (salary, AHV contribution, contract length).
When Can You Withdraw Your LPP Savings?
Legal Retirement
The AHV 21 reform, introduced in 2024, is gradually adjusting the retirement reference age (Referenzalter). In 2025, the reference age for women continues to rise until it reaches 65, matching men. Once fully implemented, both men and women will have the same normal LPP retirement age of 65.
Early Withdrawal
You can access your LPP capital before retirement only under specific conditions:
- Buying a home: You may withdraw funds every five years to buy or build an owner-occupied property (WEF). The minimum withdrawal is CHF 20,000.
- Self-employment: If you leave employment to become fully self-employed, you can withdraw the capital accumulated to date.
- Leaving Switzerland: Moving to a non-EU/EFTA country allows you to withdraw your entire vested benefits. Moving to an EU/EFTA country generally limits you to withdrawing only the over-obligatory portion; the mandatory part must stay in a vested benefits account.
Taxation of LPP Withdrawals
Lump-sum withdrawals—whether at retirement or for early-withdrawal reasons—are taxed separately from regular income. These preferential, reduced tax rates vary by canton and represent one of the key advantages of the Swiss 2nd Pillar system. For a complete guide on how to claim your pension benefits, especially when dealing with cross-border or complex situations, review our dedicated resource
FAQ
No, it is mandatory only for employees who earn an annual salary above the LPP entry threshold, which is CHF 22,680 in 2025. Workers with short-term contracts (under three months), those below the threshold, or those already at the legal retirement age are exempt from mandatory coverage.
Conclusion
The LPP remains the bedrock of middle-class retirement security in Switzerland. The 2025 adjustments, particularly the increase in the entry threshold and the coordination deduction, reflect the system's dynamic nature and its ongoing effort to adapt to economic realities and ensure the coordination with Pillar 1 remains effective. Understanding these parameters is essential for maximizing your contributions and securing your financial future. You can check the blog for all the latest updates on LPP legislation and changes.
Élodie Rochat
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