What Pillar 2 actually is
Pillar 2 is Switzerland's occupational pension system, governed by the BVG law. Every employer in Switzerland is required to affiliate with a pension fund and contribute to Pillar 2 on behalf of employees whose salary exceeds the BVG entry threshold. Both employee and employer contribute. The funds are managed by the pension fund and held separately from your employer's balance sheet, meaning they are protected if your employer fails.
Your Pillar 2 balance grows through mandatory contributions during your working years and is available as either a lump sum or a monthly pension at retirement. The balance is portable and when you change employers, your accumulated Pillar 2 funds transfer to your new employer's pension fund.
Reading your annual statement: the lines that matter
Your pension fund statement arrives once per year and contains several important figures. The projected retirement capital is the estimated total in your account at retirement age if contributions continue at the current rate. The projected annual pension converts this capital into a monthly income using the current conversion rate. The buy-in capacity or Einkaufssumme is the amount by which your current balance falls short of the maximum possible for your age and salary and is your voluntary contribution potential.
Voluntary buy-ins: the most underused tax tool in Switzerland
A Pillar 2 buy-in contribution is a voluntary payment into your pension fund up to your buy-in capacity. It is fully deductible from taxable income in the year it is made. For a Swiss resident paying an effective combined income tax rate of 25 to 30 percent, a buy-in of CHF 20,000 generates a tax saving of CHF 5,000 to CHF 6,000 in that year alone. The money does not disappear and sits in your Pillar 2 account growing tax-free until retirement.
For immigrants arriving mid-career, buy-in capacity is often very large because the Swiss system benchmarks your account balance against what it would have been if you had been contributing since age 25. The gap between your actual balance and the theoretical maximum is your buy-in capacity and it can run to CHF 100,000 or more for someone arriving at age 40.
When you can access Pillar 2 early
Pillar 2 funds are locked until retirement with three main exceptions. Home purchase allows you to withdraw funds or pledge them as collateral for a primary residence in Switzerland. Self-employment allows withdrawal under specific conditions. Emigration and leaving Switzerland permanently allows full withdrawal, subject to tax at source deducted by the pension fund.