Pensions under the BVG as institutional investors

The three pillars

The Swiss pension system rests on the principle of three pillars, which the Federal Constitution has contained since 1972. The first pillar is the state old-age and survivors’ insurance, financed on a pay-as-you-go basis. The second pillar is occupational pension provision, funded through the capital accumulated in pension institutions. The third pillar consists of voluntary private savings, part of which enjoys tax privileges. The constitutional amendment of 1972 declared occupational pensions mandatory in principle, but the federal act that gave effect to it, the Federal Act on Occupational Old-Age, Survivors’ and Disability Pension Plans, known as the BVG, came into force only on 1 January 1985, after recessions and political resistance had delayed and narrowed it. The growth of the funded pillar has been remarkable. Pension fund assets rose from CHF 37 billion in 1970 to CHF 167 billion in 1987 and reached CHF 620 billion by 2011.¹

By the end of 2024 the figure had nearly doubled again. According to the pension fund statistics of the Federal Statistical Office, published in January 2026, the balance sheet total of the 1,292 Swiss pension institutions reached CHF 1,220.6 billion at the end of 2024. About 4.8 million active members were insured. Pension institutions paid CHF 26.1 billion in pensions during the year and a further CHF 17.1 billion as lump sums on retirement. Equities accounted for 31.6 per cent of the investments, bonds for 26.9 per cent and real estate for 21.9 per cent. Net investment income reached CHF 83.7 billion, and aggregate underfunding fell to CHF 31.5 billion.² The second pillar thus holds assets comparable to one and a half times the annual gross domestic product of Switzerland. As by far the largest domestic institutional investor, it forms the natural client base for much of the Zurich asset management industry.³

Supervision and the financial situation

Supervision of pension institutions is divided between regional or cantonal supervisory authorities and a federal authority at the top. The Occupational Pension Supervisory Commission, OAK BV, is an independent authority that ensures uniform supervisory practice. It supervises the regional authorities, directly supervises the investment foundations, the Substitute Occupational Benefit Institution and the Guarantee Fund, and approves pension experts. Its stated aim is to safeguard the financial interests of insured persons in the second pillar.⁴ The commission was created by the structural reform of the occupational pension system and began its work on 1 January 2012.⁵

Every year OAK BV publishes a report on the financial situation of pension institutions. The report for 2025, released in May 2026, found an average funding ratio of 117.1 per cent, up from 114.7 per cent a year earlier. Practically no pension institution without a state guarantee was underfunded. Institutions without a state guarantee earned a net return of 6.1 per cent in 2025 and credited their members’ retirement savings with an average interest rate of 4.33 per cent, well above the legal minimum of 1.25 per cent.⁶ Such figures describe a system in good financial health after the losses of 2022. They also show how dependent the second pillar has become on capital market returns, which is the main reason why the rules on investment are so closely watched.

The investment rules of BVV 2

The investment rules for pension institutions are found in Articles 49 to 59 of the ordinance BVV 2. They combine general principles of prudence, security, diversification and liquidity with a catalogue of permitted investments and a set of percentage limits for categories such as equities, real estate, foreign currencies without hedging, alternative investments and, since 2020, infrastructure. The limits are not absolute. Article 50 para. 4 BVV 2 allows a pension institution to exceed them if its investment regulations provide for this and the institution explains in its annual report why security and diversification remain ensured. In a study published in August 2025, Ueli Mettler and Stefan Beiner reported, with reference to a pension fund survey by Swisscanto, that more than half of all pension institutions made use of this extension option, particularly for real estate. They described the regime as one in which almost everything is allowed, with only narrow prohibitions concerning leverage, obligations to make further contributions and excessive investment in the employer.⁷

In practice, therefore, the governance of the individual pension institution counts for more than the category limits. The board of trustees, composed equally of employer and employee representatives, sets the investment strategy, chooses managers and bears responsibility for the result. For the Zurich asset management industry this has two consequences. First, managers must be able to explain their strategies to boards that include lay members, and much of the marketing of insurance-linked securities, private equity or infrastructure to Swiss pension funds takes the form of education. Second, the investment foundations supervised by OAK BV, which pool the assets of several pension institutions in specific asset classes, have become an important channel through which smaller pension funds gain access to specialised strategies.

Collective foundations, life insurers and the rejected reform

The structure of the second pillar has changed profoundly since 1985. An IFZ study of the Lucerne University of Applied Sciences and Arts, published in November 2025, found that only 1,285 pension institutions remained active at the end of 2024, a decline of more than 90 per cent since the BVG came into force. Collective and common foundations, which bring together many unrelated employers under one institution, now cover about three quarters of all employed persons, with more than 15,000 active insured on average per institution.⁸ Many small and medium-sized employers have abandoned their own pension funds because the governance, actuarial and investment requirements became too demanding.

Life insurers have long played a role in this market. Through collective foundations with full insurance, in which the insurer guarantees benefits and bears all investment and biometric risks, they offered small employers a solution without funding risk. FINMA reported that private life insurers managed about one sixth of the assets of the second pillar at the end of 2020 and insured about 1.8 million employees and 260,000 pensioners, mainly in small and medium-sized enterprises. Since the revision of the BVG in 2004, the law has required insurers to keep occupational pension business separate from their other business, to publish an operating account and to distribute a minimum share of the results to policyholders. FINMA also approves the tariffs.⁹ The full insurance model came under strain in the long period of low interest rates. In April 2018 AXA announced that it would withdraw from full insurance in occupational pensions and move its foundations to a semi-autonomous model with effect from 1 January 2019, citing low interest rates, redistribution at the expense of active members and restrictive investment rules.¹⁰ The decision of one of the largest providers showed that the guarantees demanded by the BVG had become expensive to give. It also shifted more capital from insurers’ balance sheets to autonomous foundations that invest on their own account.

The central weakness of the mandatory second pillar lies in the statutory conversion rate, which turns the accumulated retirement capital into a lifelong pension. At 6.8 per cent it is widely regarded as too high for today’s life expectancy and interest rates, forcing pension institutions to subsidise new pensions from the returns of active members. Parliament adopted a reform that would have reduced the conversion rate to 6.0 per cent, lowered the entry threshold from CHF 22,050 to CHF 19,845, replaced the fixed coordination deduction with a deduction of 20 per cent of salary and granted a pension supplement to a transitional generation.¹¹ The voters rejected it on 22 September 2024 by 67.1 per cent.¹² The rejection preserved the status quo. For the capital markets, it meant that the pressure on pension institutions to generate returns high enough to finance the conversion rate would continue. Because most pension institutions insure well above the statutory minimum and apply lower conversion rates to the extra-mandatory part of the savings, the practical effect of the vote was smaller than the political debate suggested.

1e plans, vested benefits and the third pillar

Three further elements of the system matter for the private client practice of Zurich. The first is the 1e plan, named after Article 1e BVV 2. For salary components above one and a half times the upper limit of the mandatory salary, which the VZ VermögensZentrum states as CHF 136,080 a year, employers may offer plans in which the insured person chooses among up to ten investment strategies, at least one of which must be low-risk.¹³ Since 1 October 2017, insured persons in such plans who leave the pension institution take with them the actual value of their assets. They benefit from gains and bear losses themselves, where previously the law had guaranteed a minimum exit benefit.¹⁴ The 1e plan is thus an individualised defined contribution arrangement within the collective second pillar, which creates a market for investment strategies designed for high earners.

The second element consists of vested benefits. When an employee leaves a pension institution without joining a new one, the exit benefit is transferred to a vested benefits account at a bank foundation or to a vested benefits policy with an insurer. SRF reported, on the basis of a review by the Swiss Federal Audit Office, that about CHF 50 billion was held in such accounts and that about 36 per cent of holders failed to transfer their assets to a new pension fund when they changed jobs, half of them simply because they forgot.¹⁵ Vested benefits foundations may offer securities-based solutions, which has turned them into a product for banks and independent asset managers.

The third element is pillar 3a, the tax-privileged form of private pension saving. In 2026 employees who belong to a pension fund may deduct contributions of up to CHF 7,258 a year, and self-employed persons without a pension fund up to 20 per cent of their earned income, with a maximum of CHF 36,288. Since 2026 it has also been possible to make retroactive contributions for up to ten earlier years, beginning with contributions for 2025, provided that the person had taxable earned income in both years. Contributions may be paid into restricted insurance policies with insurers or into restricted savings agreements with bank foundations.¹⁶ Pillar 3a insurance policies are the domestic cousins of the insurance wrappers discussed next. They combine savings with risk cover, benefit from a tax privilege and are subject to rules that determine to whom the benefits are paid on death. Since the revision of Swiss inheritance law on 1 January 2023, pillar 3a assets held with insurers and with bank foundations are treated alike: both fall outside the estate and are paid directly to the beneficiaries, although their value is taken into account in calculating the compulsory shares of heirs.¹⁷

Notes

1. Geschichte der Sozialen Sicherheit in der Schweiz, “1985” (synthesis), on the constitutional anchoring of the three-pillar principle in 1972, the entry into force of the BVG in 1985, the restrictions of the final law and the growth of pension fund assets from CHF 37 billion (1970) to CHF 167 billion (1987) and CHF 620 billion (2011), https://www.geschichtedersozialensicherheit.ch/synthese/1985. ↩
2. Federal Department of Home Affairs / Federal Statistical Office, media release “Berufliche Vorsorge: Anstieg der Bilanzsumme, Reduktion der Unterdeckung – Pensionskassenstatistik 2024: Definitive Ergebnisse und Kennzahlen” (21 January 2026), on the balance sheet total of CHF 1,220.6 billion, 1,292 pension institutions, about 4.8 million active insured, benefit payments, asset allocation, net investment income and underfunding, https://www.edi.admin.ch/de/newnsb/hhiHzDsYS69dBD6sQpGmH. ↩
3. Germany Trade & Invest, “Wirtschaftsdaten kompakt: Schweiz” (December 2024), giving nominal GDP of CHF 804.0 billion for 2023 and an estimated CHF 825.0 billion for 2024, https://www.gtai.de/resource/blob/18322/0d08c7cd5253e0320980fbea7d86d08e/GTAI-Wirtschaftsdaten_Dezember_2024_Schweiz.pdf. The ratio of about 1.5 is an approximation. ↩
4. Oberaufsichtskommission Berufliche Vorsorge OAK BV, website, on its role as independent supervisory authority ensuring uniform supervisory practice, its direct supervision of investment foundations, the Stiftung Auffangeinrichtung BVG and the Sicherheitsfonds BVG, its oversight of the regional authorities and its approval of pension experts, https://www.oak-bv.admin.ch/de. ↩
5. Federal Social Insurance Office, “Strukturreform in der beruflichen Vorsorge”, on the adoption of the reform by Parliament on 19 March 2010, its entry into force in stages on 1 January 2011, 1 August 2011 and 1 January 2012, and the start of the Oberaufsichtskommission Berufliche Vorsorge on 1 January 2012, https://www.bsv.admin.ch/de/strukturreform-bv. ↩
6. investrends.ch, “OAK BV: 2025 war dank Renditen ein gutes Jahr für die berufliche Vorsorge”, reporting the OAK BV report on 2025 released on 12 May 2026: average funding ratio 117.1 per cent (2024: 114.7 per cent), net returns of 6.1 and 6.2 per cent, an average interest credit of 4.33 per cent and the minimum rate of 1.25 per cent, https://investrends.ch/aktuell/news/2025-war-dank-renditen-ein-gutes-jahr-fur-die-berufliche-vorsorge/. ↩
7. Ueli Mettler and Stefan Beiner, “BVV2-Anlagerichtlinien – Ein Hindernis für den Diversifikationsgrundsatz?”, Schweizer Personalvorsorge 08·25 (August 2025), on the percentage category limits of Articles 55 et seq. BVV 2, the extension option of Article 50 para. 4 BVV 2 used by more than half of pension institutions according to the Swisscanto study, and the narrow remaining prohibitions, https://cdn.website.prod.eng.c-alm.ch/PUBLICATION/BVV2-Anlagerichtlinien_-_Ein_Hindernis_fuer_den_Diversifikationsgrundsatz~_DE.pdf. ↩
8. UBS Focus, “Sammel- und Gemeinschaftseinrichtungen im Fokus”, presenting the IFZ study 2025 by Florian Schreiber, Karsten Döhnert and Yvonne Seiler Zimmermann (Institut für Finanzdienstleistungen Zug, Hochschule Luzern, 28 November 2025), on 1,285 pension institutions at end-2024, the decline of more than 90 per cent since 1985 and the coverage of about three quarters of employees by collective and common foundations, https://www.ubs.com/microsites/focus/de/trends/2025/ifz-studie-2025.html. ↩
9. FINMA, “Berufliche Vorsorge / Occupational pension schemes”, on life insurers’ share of about one sixth of second-pillar assets, 1.8 million employees and 260,000 pensioners at end-2020, the 2004 transparency rules and minimum quota, annual reporting and tariff approval, https://www.finma.ch/en/supervision/insurers/sector-specific-tools/occupational-pension-schemes/. ↩
10. Vorsorgeforum, “Axa steigt aus der Vollversicherung aus” (10 April 2018), on AXA’s announcement, the transition to semi-autonomous solutions from 1 January 2019 and the reasons given, https://www.vorsorgeforum.ch/bvg-aktuell/2018/4/10/axa-steigt-aus-der-vollversicherung-aus.html. ↩
11. Federal Social Insurance Office (BSV), “Reform der beruflichen Vorsorge (BVG-Reform)”, on the proposed reduction of the conversion rate from 6.8 to 6.0 per cent, the new coordination deduction of 20 per cent, the lower entry threshold, the transitional supplement of up to CHF 200 and the rejection in the vote of 22 September 2024, https://www.bsv.admin.ch/de/bvg-reform-2024. ↩
12. SWI swissinfo.ch, “Resultate der Abstimmung vom 22. September 2024 in der Schweiz”, on the rejection of the BVG reform by 67.1 per cent, https://www.swissinfo.ch/ger/schweizer-politik/resultate-der-abstimmung-vom-22-september-2024-in-der-schweiz/87490749. ↩
13. VZ VermögensZentrum, “1e-Plan: Die moderne Pensionskassen-Lösung für das Kader”, on the threshold of CHF 136,080, the choice among up to ten strategies including one low-risk strategy and the bearing of losses since the 2017 amendment, https://www.vermoegenszentrum.ch/wissen/1e-plan. ↩
14. Federal Social Insurance Office, media release “Bundesrat regelt wählbare Anlagestrategien in der 2. Säule und erleichtert die Rückzahlung” (30 August 2017), on the entry into force on 1 October 2017 of the rule that insured persons with selectable investment strategies take any gain and bear any loss on leaving the pension institution, https://www.bsv.admin.ch/bsv/de/home/publikationen-und-service/medieninformationen/nsb-anzeigeseite.msg-id-67902.html. ↩
15. SRF, “50 Milliarden Franken parkiert – Schweizer vergessen ihre Freizügigkeitsguthaben”, reporting a review by the Swiss Federal Audit Office on about CHF 50 billion held in vested benefits accounts and the share of holders who fail to transfer them, https://www.srf.ch/news/wirtschaft/50-milliarden-franken-parkiert-schweizer-vergessen-ihre-freizuegigkeitsguthaben. ↩
16. Federal Social Insurance Office, “Die dritte Säule”, on the 2026 maximum contributions of CHF 7,258 and CHF 36,288, retroactive contributions for up to ten years from 2026 for the year 2025 onwards, and the two forms of restricted pension provision with insurers and bank foundations, https://www.bsv.admin.ch/de/die-dritte-saeule. ↩
17. Claudia Stehli (Liatowitsch & Partner), “Die erbrechtliche Behandlung der Säule 3a nach der Erbrechtsrevision per 1. Januar 2023” (24 June 2021), on the equal treatment of insurance and bank foundation pillar 3a assets outside the estate under Article 82 para. 4 BVG and their inclusion in the calculation of compulsory shares under Article 476 ZGB, https://www.liatowitsch.ch/die-erbrechtliche-behandlung-der-saeule-3a-nach-der-erbrechtsrevision-per-1-januar-2023/. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.