Mandatory and extra-mandatory OPA benefits

Occupational benefits insurance is mandatory for employees of companies in Switzerland. When choosing a pension fund, various statistics and aspects can help provide a better picture of what's being offered. Among other things, it is worth taking a closer look at the mandatory and voluntary portion of retirement assets.

Occupational benefits insurance in Switzerland: mandatory and extra-mandatory OPA benefits

Employees in Switzerland who earn at least CHF 22,680 (= entry threshold 2025) per calendar year are compulsorily insured under the Federal Act on Occupational Old Age, Survivors’ and Invalidity Pension Provision (OPA), i.e. Pillar 2.

They pay corresponding risk and savings contributions monthly. Risk contributions are used to cover the risks of disability and death, while savings contributions, which account for the largest proportion, are saved as retirement assets in the pension fund. This amount earns interest from the occupational benefits institution and is either converted into a lifelong pension on retirement using the conversion rate, paid out as a lump sum, or can be withdrawn in a combined form.

With regard to retirement capital, a distinction is made between mandatory and extra-mandatory assets, for which different conditions and benefits apply.

What do mandatory OPA benefits cover?

The framework conditions for the mandatory portion are prescribed by law, as this is the minimum pension. These are the legal requirements for mandatory OPA benefits:

• Cover against the risks of death and disability due to illness begins on January 1 following the person’s 17th birthday, while cover for the savings phase (levying of savings contributions) begins on January 1 following the person’s 24th birthday. In both cases, an annual minimum income of CHF 22,680 must also be exceeded.
• The mandatory benefits include salary components up to a maximum of CHF 90,720 p.a.
• The coordination deduction (see info box below) is a fixed amount of CHF 26,460.
• Depending on age, the annual savings contributions amount to 7%, 10%, 15% or 18%.
• Retirement capital earns interest at the applicable minimum interest rate (currently 1.25%).
• The statutory conversion rate for mandatory benefits is 6.8%.

What are extra-mandatory benefits under OPA and how do they come about?

Salary elements insured in Pillar 2 that go beyond the mandatory benefits count as extra-mandatory benefits. Various circumstances can lead to the accumulation of retirement assets in extra-mandatory benefits:

• The pension plan is permitted to insure income that falls below the entry threshold.
• The saving process begins before the age of 25.
• The annual salary is higher than CHF 90,720, and the salary components above this amount are taken into account in the pension fund solution.
• The coordination deduction is less than required by law (depending on level of employment, for example).
• Savings contributions are higher (voluntary higher contribution payments by employers and employees).
• Retirement capital earns interest at a rate higher than the statutory minimum.
• The employee already had a pension solution before the OPA came into force (1985).
• Voluntary purchases of benefits were made in the pension fund.

Why is it important to distinguish between mandatory and extra-mandatory benefits?

Unlike mandatory benefits, there are no statutory requirements covering the conditions and benefits for extra-mandatory ones. This means that pension funds are free to set the interest rate and the conversion rate applicable to the extra-mandatory salary components. For business owners, this means that they must compare the different terms and conditions of pension institutions to find the right OPA solution for their employees.

Extra-mandatory benefits in OPA: which figures are important?

For extra-mandatory benefits, the interest rate and conversion rate are particularly important.

Conversion rate: comprehensive vs. split

The conversion rate is prescribed for mandatory OPA benefits; for extra-mandatory benefits, there are two methods of converting retirement assets into a retirement pension: the comprehensive and the split option.

Under the split option, a different conversion rate is applied to both mandatory and extra-mandatory benefits – for example, the statutory conversion rate of 6.8% for mandatory benefits and a different, freely selectable conversion rate (e.g. 5%) for the salary components in extra-mandatory benefits.

With the comprehensive conversion rate however, a uniform (combined) conversion rate applies to all retirement assets (mandatory and extra-mandatory assets) (e.g. 5.4%).

Even if a pension fund applies a comprehensive conversion rate, the retirement pension paid out must never be below the statutory minimum (i.e. the mandatory retirement assets converted using the statutory conversion rate).  

Conversion rate vs. interest rate - which is more important?

Another figure to consider is the interest rate applied to retirement assets by the pension institution.

Some pension funds apply a higher interest rate for extra-mandatory benefits than for mandatory ones (especially pension funds with a split conversion rate). If you look at both figures, the question arises as to which is better - a higher interest rate or a higher conversion rate?

In this case, too, it’s worth making an individual calculation. For instance, if you're starting your career and you receive an attractive interest rate on your retirement capital for 40 years, you will ultimately receive a higher pension, even if the conversion rate is somewhat lower.

Our conclusion

When choosing a pension fund, it’s worth paying attention to the conditions for extra-mandatory benefits (e.g. high interest rates or favorable conversion rate) as well as the relationship between the conversion and interest rates. A rough overview of the relevant key figures of a pension fund supports the decision. Many pension funds offer attractive OPA solutions with helpful services for administration and additional healthcare services.