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State pensions and mandatory schemes
Do employers and/or employees make pension contributions to the government in your jurisdiction? If so, briefly outline the existing state pension system.
Employers and employees make pension contributions.
According to Article 111 of the Federal Constitution, the social security system is organised in a three-pillar regime:
- old-age and survivors insurance (first pillar);
- the occupational pension system (second pillar); and
- the individual pension system (third pillar).
In principle, old-age and survivors insurance mandatorily covers each person domiciled or working in Switzerland, including employees and independents.
Combined with this insurance, the occupational pension system should enable the insured to maintain his or her previous lifestyle (ie, his or her lifestyle before retirement) in an appropriate manner.
The objective of the individual pension system is to compensate for any lack of coverage resulting from the first and second pillars and to allow retirees to maintain their standard of living.
The individual pension system is optional. However, contributions to the third pillar are tax deductible up to an amount determined annually by the Federal Council.
Can employers deduct any state pension contributions from their taxable income?
Employer contributions to the first and second pillars are deductible from taxable income.
Are there any proposals to reform or amend the existing system?
On September 24 2017 a popular vote took place on a proposed reform of the social security system. This reform included, in particular, the following measures:
- an increase in the retirement age for women from 64 to 65;
- an increase in employer and employee combined saving contribution rates to occupational pension plans;
- a reduction in the conversion rate (ie, the rate used to calculate the retirement pensions of occupational pension plans) from 6.8% to 6%;
- an increase in the minimum age of early retirement from 58 to 62;
- an increase in the flexibility of the retirement age from 62 to 70; and
- a Sfr70 increase in the monthly state retirement pension.
This reform was refused by the Swiss population. However, it is expected that a new reform project will be prepared in the following years. This new reform project is likely to include most of the abovementioned measures.
Other mandatory schemes
Are employers required to arrange or contribute to supplementary pension schemes for employees? If so, briefly outline how the scheme is enforced and regulated.
In principle, employees subject to old-age and survivors insurance are mandatorily insured to a pension plan, provided that their annual income is at least SFr21,150 in 2017. Independents may be insured on a voluntary basis.
Statutory minimum plans cover the coordinated salary, which is the part of the salary between Sfr24,675 and Sfr84,600. Contributions must be paid by both employers and employees and are calculated as a percentage of the employee’s salary (7% for 25 to 34-year-olds and up to 18% for 55 to 65-year-olds). Employers must pay at least 50% of the contributions.
Supplementary plans can cover an additional part of the salary, beyond the coordinated salary. Different combined contribution rates may apply under supplementary plans.
Occupational pension schemes
Types of scheme
What are the most common types of pension scheme provided by employers for their employees in your jurisdiction?
There are two types of pension scheme in Switzerland:
- defined benefit plans; and
- defined contribution plans (which are rare in practice).
In defined benefit plans, benefits are fixed in advance and their amount is usually based on the amount of the insured salary. Defined contribution plans provide for benefits which are fixed only when they are to be paid and their amount is determined in light of the accrued contributions of the insured.
Benefits As a matter of principle, occupational pension benefits are paid out as a pension. In this context, once a person reaches retirement age (ie, 65 for men and 64 for women), or in case of any other insured event, a minimum conversion rate is calculated in order to set the amount of the retirement pension. The existing conversion rate is 6.8% (for men and women who have reached the normal state retirement age). The rate is adjusted each year by the Federal Council.
In certain cases retirement savings can also be paid partially or as a lump sum.
Is there a statutory framework governing the establishment and operation of occupational pension plans?
Occupational pension plans are mainly governed by:
- the Federal Act on Occupational Pension; and
- the Federal Act on Vesting in Pensions Plans.
These two acts are complemented by the following ordinances:
- the Ordinance on Occupational Retirement, Survivor and Disability Pensions Plans;
- the Ordinance on the Tax Deductibility of Contributions to Recognised Forms of Benefits Schemes; and
- the Ordinance on the Use of Pension Assets for the Encouragement of Home Ownership.
This statutory legal framework is complemented by the internal regulation of the pension funds, which must be approved by the supervisory authority.
What are the general rules and requirements regarding the vesting of benefits?
In general, retirement savings accrued over an insured person’s working years are paid once that person has reached retirement age (ie, 65 for men and 64 for women). However, if the internal regulations of the pension fund authorise it, the retirement pension may be paid out two years before or deferred up to five years after retirement age. Whereas early retirement leads to a reduction in the pension level, deferral has the opposite effect.
Until the age of early retirement, retirement savings can, in principle, be paid only in case of the disability or death of the insured. Therefore, benefits are vested only when an insured event (ie, retirement, disability or death) occurs.
However, in certain circumstances, retirement savings may be paid out to the insured as a lump sum, irrespective of an insured event, such as:
- acquisition of real estate;
- definitive departure from Switzerland to a non-European Union or European Free Trade Association country;
- taking up self-employed activity; or
- very low retirement savings.
What are the general rules and requirements regarding the funding of plan liabilities?
Pension funds are financed by:
- contributions paid by employers and employees, as well as voluntarily affiliated self-employed persons; and
- profits from the pension fund’s investments.
As a general rule, pension funds should ensure that their coverage rate (ie, the percentage of the liabilities of a pension fund covered by its assets) does not fall below 100%. If assets exceed the liabilities, pension funds are obliged to create a fluctuation reserve. In case of a shortfall in the financing of a pension fund (ie, a coverage rate below 100%), pension funds must take measures in order to reach the legal minimum coverage rate. Such measures may, in particular, include the obligation for insured persons or retirees to pay additional contributions.
In order to establish financial statements, pension funds must rely on Swiss reporting standards (eg, Swiss GAAP FER 26, not International Financial Reporting Standards).
What are the tax consequences for employers and participants of occupational pension schemes?
Both employers and employees contributions are tax deductible.
As is the case with any other form of income, all benefits received as a pension are taxed at a normal rate. Where benefits are paid as a lump sum, a reduced rate of (in principle) one-fifth of the standard applicable rate is applied.
Is there any requirement to hold plan assets in trust or similar vehicles?
In principle, assets must be held in a pension fund structured as:
- a foundation; or
- a public entity with legal personality governed by Swiss law.
In any case, it must be a separate entity from the employer. All pension funds are under the surveillance of the supervisory authority.
There are three types of pension fund under Swiss law:
- individual pension funds (set up by a single company to run its employees’ plans);
- shared pension funds (set up by multiple companies to run their employees’ plans); or
- collective pension funds (generally set up by insurers and joined by multiple companies).
Are there any special fiduciary rules (including any prohibited transactions) in relation to the investment of pension plan assets?
Pension fund board members are responsible for the investment strategy of the pension fund’s assets and sufficiency of the returns. Board members must serve the interests of the insured’s pension fund. To this end, personal and professional interests should raise no conflict of interest.
Nevertheless, legal requirements must be complied with, which limit the types of investment, as well as the proportion of investment. For example, only 5% of the pension fund’s assets can be invested in a single company’s shares.
Is there any government oversight of plan administration and/or insurance coverage for plan benefits in the event of an employer’s insolvency?
Pension funds are structured as entities which are separate from employers. As such, an employer’s insolvency has no effect on the pension fund’s solvency.
In case a pension fund becomes insolvent, a so-called national ‘security fund’ guarantees the benefits of the pension fund based on a maximum insured salary of Sfr126,900 (corresponding to one-and-a-half times the maximum insured salary under the Occupation Benefits Act). The security fund is financed by pension funds.
Moreover, the supervisory authority controls the pension funds’ activities at all times so as to avoid insolvency where possible. The supervisory authority may take specific measures, including entrusting the management of a pension fund’s assets to a public authority or cancelling the decisions of a pension fund’s board.
Are employees’ pension rights protected in the event of a business transfer?
Pension funds are legally independent from employers and a business transfer should have no direct effect on an employee’s pension rights.
In the case of a business transfer, employee pension rights are, in principle, protected. The accrued retirement savings are transferred to the pension fund of the new employer. The employee rights to benefits are then calculated according to the applicable regulations of the new pension fund.
Under certain circumstances, employees can receive more or fewer benefits than they have accrued. This is particularly so when a partial liquidation occurs in the following situations:
- a large number of employees leave a company;
- a company is subject to restructuring with layoffs; or
- affiliation with a pension fund is terminated.
In the event of a partial liquidation, should the coverage rate be lower than 100%, the retirement savings of leaving employees will be proportionally reduced. However, such a reduction should not affect the minimum retirement savings as calculated under the Occupation Benefits Act, to the extent that the pension fund actually has sufficient assets to cover this amount.
Deferred compensation agreements
Deferred compensation plans
Do any special tax rules apply to these types of arrangement?
No, there are no special tax rules. The date at which the payment of the compensation is made determines the moment of the tax assessment.
Do these types of arrangement raise any special securities law issues?
In principle, these types of arrangement raise no special securities law issues.
What are the most common types of share option plan in your jurisdiction? Please outline the rules relating to each scheme.
Swiss law does not provide for specific types of share option plan. Thus, each share option plan contains its own features, which depend on the size of the company (eg, small and medium-sized enterprises or multinationals) or the beneficiaries of the plan (eg, top-tier management or mid or low-level employees).
Typically, in a share option plan, qualified employees are entitled to buy a certain number of shares at a particular price (which can be lower than actual market value) or for free. Employees can exercise their options within a defined period. Moreover, options may be blocked for a certain period during which employees cannot exercise their rights.
What are the tax considerations for share option plans?
Depending on the way that options are granted to employees, such a grant may be considered taxable income.
If the employees' shares are granted free of charge or on preferential terms, the positive difference between the market value and the attribution price to the employees constitutes a tangible financial advantage and is thus considered taxable income.
The Federal Act on Taxation of Share Option Plans entered into force on January 1 2013. It distinguishes between:
- non-tradable or unlisted options, which are taxed when the right of acquisition is exercised; and
- tradable and publicly traded options, which are taxed at the time of the grant to the employee.
Blocked shares may present a loss of value. This feature is taken into account by granting a 6% discount per blocking year, up to a maximum of 10 years.
Share acquisition and purchase plans
What are the most common types of share acquisition and purchase plan in your jurisdiction? Please outline the rules relating to each scheme.
Most Swiss share acquisition and purchase plans offer the possibility for qualified employees to buy shares at a discounted price or to receive free shares. Such shares are generally blocked for a certain period during which employees cannot trade them.
What are the tax considerations for share acquisition and purchase plans?
The difference between the selling price and the fair market value of the shares is taxed when the shares are acquired by the employee. If a share cannot be sold by the employee once he or she buys it (ie, blocked shares), a tax discount of 6% per annum (up to 10 years and 44.161%) is conceded.
The market value of private companies’ shares must be determined by the employer. If the calculation is modified before the sale of the shares, the amount earned because of the change will be taxed as income. However, some Swiss cantons have special taxation rules.
Phantom (ie, cash-settled) share plans
What are the most common types of phantom share plan used in your jurisdiction? Please outline the rules relating to each scheme.
Most Swiss phantom share plans offer qualified employees the possibility to buy phantom shares that reflect the progression of the company’s shares. Phantom shares do not provide voting rights or dividends (although the employer usually gives some cash to phantom-share detainers in proportion to the number of normal shares). Phantom shares cannot be traded, only sold back to the company, which normally buys them at market value.
What are the tax considerations for phantom share plans?
Employees pay tax when the phantom shares are sold back to the company, not when they are granted. Phantom shares held by the employee are not subject to wealth tax.
Are companies required to consult with employee unions or representative bodies before launching an employee share plan?
In principle, there is no obligation for companies to consult with employee unions or representative bodies in relation to an employee share plan.
Provision of insurance
What is the health insurance provision framework in your jurisdiction? For example, is it provided by the government, through private insurers or through self-funded arrangements provided by employers?
Healthcare insurance is mandatory in Switzerland and it is every resident’s duty to contract with an approved private company. There are exemptions for diplomatic workers.
According to the Federal Act on Health Insurance, the Swiss cantons must provide a list of approved private insurance companies (eg, there are 37 approved companies in the canton of Geneva in 2017) which will provide basic healthcare insurance to anyone residing in the canton. Basic healthcare covers the costs of any medical treatment which is prescribed by a doctor and listed by the Federal Act on Health Insurance.
The insured must pay a monthly fee (eg, the average fee in Geneva in 2017 is Sfr553.53 per month) and an annually deductible fee which ranges between Sfr300 and Sfr2,500. Once the deductible fee has been paid, the insured must pay 10% of the medical costs up to Sfr700.
In addition to basic healthcare, the insured may affiliate with an additional health insurance plan, which will cover extra benefits (eg, a private room in case of hospitalisation).
Do any special laws mandate minimum coverage levels that must be provided by employers?
No, Swiss health insurance is not provided by employers. It is every Swiss resident’s responsibility to affiliate with a health insurance plan. Some companies may partially or entirely subsidise the healthcare of their employees by providing a discretionary allowance.
Any person who affiliates with a basic health insurance plan provided by the Federal Act on Health Insurance is covered for the same benefits.
Can employers provide different levels of health benefit coverage to different employees within the organisation?
Health insurance is mandatory for every employee and is provided by private companies. Basic health insurance coverage is the same for every employee.
Are employers obliged to continue providing health insurance coverage after an employee’s termination of employment?
Health insurance is not provided by employers in Switzerland and does not depend on the employment relationship between employee and employer. Thus, termination of employment does not affect an employee’s health insurance.