Pay-As-You-Go (Public)

• How it works: The current workforce pays contributions (taxes or social security), which are immediately used to fund benefits for today’s retirees.

• Examples: Swiss AHV, US Social Security.

• Collection: Contributions are deducted directly from salary (shared by employee & employer). Collected by social security authorities (AHV compensation offices).

• Challenge: With aging populations, fewer workers must support more retirees.

• Receipt of pension payment: From the statutory retirement age (currently 65 for men, 64 for women; moving toward 65 for both by 2028).

• How paid: Monthly payments until death.

• Amount: Based on years of contribution and income.

Occupational – Employer-Based

• How it works: Employers and employees contribute to a pension fund throughout the employee’s career.

• Investments: The fund is invested in assets such as stocks, bonds, and real estate.

• Outcome: At retirement, benefits are paid from the worker’s accumulated savings plus investment returns.

• Collection: Employers automatically deduct contributions from salaries and forward them to the employee’s pension fund (Pensionskasse). Employers also contribute their share.

• Receipt of pension payment:

  At retirement, the pension fund (not the government) pays either:

  • A monthly annuity for life, or

  • A lump sum (if chosen)

• How it works: Individuals make voluntary contributions into private pension accounts, or retirement funds.

• Funding: Fully financed by the individual, often with tax advantages since third-pillar contributions are deductible from taxable income.

• Examples: Swiss Pillar 3a/3b, US IRAs, UK ISAs.

• Collection:

  Individuals contribute voluntarily into a bank account or insurance product.

  No employer involvement (unless employer arranges a group 3a plan).

• Receipt of pension payment:

  At withdrawal (retirement, home purchase, self-employment, emigration), private financial service providers releases the funds.

  Usually a lump sum.