The three Pillars system
The Swiss pension system is based upon three “Pillars”, or funds.
The first Pillar consists of the state pension (AVS), received from the age of 65 for men and 64 for women. It is based on the number of years contributed, the income level and any allocations received during military service, maternity care, invalidity or unemployment. In principle, anyone who lives or works in Switzerland is covered by the AVS and receives a pension at the time of retirement, regardless of their marital situation. It aims to partly cover the loss of income resulting from retirement, invalidity or death of a spouse and to provide a basic subsistence level of income.
The second Pillar fund (LPP) consists of a mandatory fully-funded pension scheme directly deducted from the employee’s salary, where both the employer and the employee contribute proportionally to the insured income. The second Pillar only insures income when wages exceed 21,150 CHF per year paid from the same employer.
The third Pillar is a private pension scheme, non-compulsory and offering tax advantages, consisting of savings or inheritance built up during employment in prevision of retirement.
Splitting pension funds after a divorce
The rules are different following the nature of the concerned funds.
First Pillar funds cannot be split. The AVS is provided regardless of the person’s marital background and is thus not concerned by divorce implications.
Third Pillar funds can be split or not, depending on the marital regime chosen by spouses. It is subject to the liquidation of the matrimonial property regime. If spouses have not signed a marriage contract, they are subject to the regime of participation in acquired property. This implies the equal splitting of assets, where debts and pension funds are equilibrated between spouses at the time of the divorce. If spouses have signed a separation of assets agreement, each spouse is responsible for his/her debts and assets. Private savings accumulated by one spouse during marriage and placed in a 3rd Pillar fund cannot be shared under the separation of assets.
Different rules apply to second Pillar funds. The LPP is not subject to marital regime regulations but is required under Swiss law to be equally split between spouses to ensure that each party receives retirement benefits post-divorce (art. 122 CC).The judge has the power to avoid the pension-splitting decision if spouses have agreed on a mutual basis not to share their 2nd Pillar, when they have both contributed and their individual’s funds are estimated to be sufficient (art. 123 CC). Typically, a large number of divorced couples agree to renounce to share their 2nd Pillar funds. This act of renunciation must be part of the divorce settlement where the judge has previously ensured that conditions required in art. 123 al 1 CC, the spouse is benefiting from a sufficient 2nd Pillar fund, are fulfilled. The judge also has the authority to refuse to proceed to the sharing of pension benefits if it results in an unfair situation for one of the spouses, based on criteria that happened before the marriage. Until recently, divorcing spouses who had already reached retirement time were not entitled to sharing their 2nd Pillars and received instead an indemnity.
New regulation regarding second pillar funds
The Swiss Federal Counsel has recently modified the law regarding the splitting of the 2nd Pillar in the case of a divorce, in order to reduce inequalities between spouses.
First, the second Pillar fund is now equally shared between spouses, regardless of whether one of the spouses is already receiving a pension for invalidity or retirement in the case of an insured event. The indemnity scheme based on art. 124 CC no longer exists. If the divorce takes place when a spouse is already receiving benefits, the share from the 2nd Pillar is granted in the form of a life annuity (“rente viagère”). This life annuity is granted regardless of the spouse creditor deceases or remarries, allowing the spouse to receive better benefits.
The second major change consists in the timing of the pension-splitting process. Splitting the second Pillar no longer occurs at the date of the divorce pronouncement but at the date of the introduction of the divorce proceeding. This aims to address the issues of divorce proceedings being particularly lengthy where the time lag spans over several years, which could end-up advantaging or disadvantaging a spouse.
Splitting international pension funds between spouses
In divorce proceedings involving pension assets located overseas, the issue lies in estimating what is the equivalent of a second Pillar fund according to Swiss law. The judge will have to evaluate each case carefully and determine whether spouses are affiliated to different pension plans overseas, what do they correspond to and undertake some research on spouses’ situation before proceeding on the estimation of the indemnity. If the judge estimates that the overseas benefits are equal to a second Pillar fund, an indemnity corresponding to half of the fund will have to be granted to the spouse. If the judge estimates that these funds are not equivalent to a second Pillar fund but correspond to a third Pillar, the benefits cannot be shared if spouses are married under the separation of assets regime or will be split differently if spouses are married under the participation of acquired property. The issue of hidden pension benefits located overseas in the case of foreigners working in Switzerland can be challenging, in particular in the case of expatriates working for multinationals companies completing short-term assignments in various countries.
More information regarding divorce and family laws in Switzerland on www.legalexpatgeneva.com. For personal advise, please contact Nicolas Mossaz at Ochsner & Associés, 1 Place de Longemalle, 1204 Genève.
Phone: +41 22 786 88 66