The Swiss Multi-Pillar Pension System: Triumph of Common Sense?

91 Pages Posted: 20 Apr 2016

See all articles by Monika Queisser

Monika Queisser

Organization for Economic Co-Operation and Development (OECD) - Social Policy Division

Dimitri Vittas

World Bank - Financial Sector Development

Date Written: August 2000


Switzerland is the first country to have publicly articulated the benefits of a multi-pillar approach to pensions and the first OECD country to have mandated that employers provide occupational pension plans for their employees. Not surprising, the Swiss system has many unique and attractive features.

Queisser and Vittas provide a detailed study of the Swiss pension system, analyzing its strengths and weaknesses.

The unfunded public pillar is highly redistributive. It has near universal coverage, a low dispersion of benefits (the maximum public pension is twice the minimum), and no ceiling on contributions. Low-income pensioners receive means-tested supplementary benefits. Payroll taxes are low, but government transfers cover 27 percent of total benefits. Total benefits amount to 9.1 percent of GDP, equivalent to 15.2 percent of covered earnings.

The funded private pillar was made compulsory in a defensive move against the relentless expansion of the public pillar. The compulsory pillar stipulates minimum benefits in the form of age-related credits, a minimum interest rate on accumulated credits, and a minimum annuity conversion factor, aimed to smooth changes in interest rates over time. Low-income workers are not required to participate in the second pillar. The first and second pillars as well as supplementary benefits are admirably integrated.

Company pension plans are free to set terms and conditions in excess of these minimums, and most offer benefits exceeding obligatory levels. The second pillar has accumulated large financial resources, equivalent to 125 percent of GDP. Investment returns have historically been low, but a shift in asset allocation in favor of equities and international assets has increased reported returns in recent years.

The third (voluntary) pillar covers self-employed workers and others not covered by the second pillar. It plays a rather small role in the system.

Many of the positive features of the Swiss pension system are not due to some grand original design but are instead the result of periodic revisions. In large part they reflect the collective common sense of the Swiss people in voting for stable and fiscally prudent social benefits.

However, the Swiss system also has some weaknesses. As in many other countries, the public pillar faces a deteriorating system dependency ratio, due to demographic aging and a large increase in disability pensions. The second pillar is fragmented (more than 4,000 funds with affiliates), lacks transparency, and has achieved low investment returns.

This paper - a product of Finance, Development Research Group - is part of a larger effort in the group to study pension systems and assess the role of public and private as well as funded and unfunded pillars. The authors may be contacted at or

Suggested Citation

Queisser, Monika and Vittas, Dimitri, The Swiss Multi-Pillar Pension System: Triumph of Common Sense? (August 2000). World Bank Policy Research Working Paper No. 2416. Available at SSRN:

Monika Queisser

Organization for Economic Co-Operation and Development (OECD) - Social Policy Division ( email )

2 rue Andre Pascal

Dimitri Vittas (Contact Author)

World Bank - Financial Sector Development ( email )

Washington, DC 20433
United States


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