Pension Guide

Which pension fund for your household employee? Why the Substitute Institution is rarely the best choice

As soon as your cleaner, nanny or carer earns above the BVG threshold, you must enrol them with a pension fund. Most families end up with the Substitute Occupational Benefit Institution - the fund that has to accept everyone. Convenient, but for low wages it almost always means the worst pension. Here's what actually matters when you compare.

Reading time: 8 min · Last updated: July 2026

In short

You can enrol your household employee with any pension fund. The Substitute Institution accepts everyone, but insures low wages only on the minimum. A collective foundation with a reduced or zero coordination deduction often builds several times more retirement savings for your employee - at a similar cost to you.

The coordination deduction (CHF 26,460) eats almost the entire insurable wage at low salaries.
On a CHF 25,000 annual wage, the standard fund insures only the CHF 3,780 minimum.
Funds that insure 'from the first franc' multiply your employee's future pension.

First check: when is BVG mandatory at all?

Why almost everyone ends up with the Substitute Institution

As the employer you are free to choose which pension fund you join. In practice most families take the Substitute Occupational Benefit Institution - simply because it is the only fund obliged to accept every employer, even for a single employee. No sales pitch, no rejection, done immediately.

The catch: the Substitute Institution applies exactly the statutory minimum model. For a low or part-time wage - which is precisely the typical household wage - that is often the leanest pension there is. What is 'simple' is not automatically 'good for your employee'.

The Substitute Institution is a solid fallback and perfectly correct for pure compliance. But if your employee's retirement matters to you, it pays to look at the alternatives - and that look usually costs you nothing.

The problem: the coordination deduction eats the pension

It isn't the whole wage that's insured, only the 'coordinated salary': gross wage minus the coordination deduction (CHF 26,460 in 2026). At a high wage that barely matters. But for a cleaner on CHF 25,000 a year the deduction is larger than the entire wage:

Annual gross wage (cleaner, part-time)	CHF 25,000
− Coordination deduction	− CHF 26,460
= coordinated salary (arithmetic)	CHF 0
→ insured minimum salary (statutory)	CHF 3,780

Instead of saving on CHF 25,000, your employee only saves for retirement on CHF 3,780. At a 7% retirement credit that is about CHF 265 a year - split in half, so roughly CHF 11 per month per side. Over a working life that leaves barely any meaningful pension. This is exactly where a standard fund parts ways with a better one.

Substitute Institution vs. a better fund: what matters

Funds differ less in the letter of the law than in their scheme rules. These four points make the biggest difference for a household wage:

Criterion	Substitute Institution (standard)	Collective foundation with tailored plan
Coordination deduction	full (CHF 26,460)	reduced or zero (from 1st franc)
Insured wage at a low workload	very low (minimum)	considerably higher
Administrative costs	1.5%, max CHF 350/year	varies by fund
Accepting a single person	guaranteed (duty to accept)	not always - sometimes a minimum/fee

On top come the interest credited on retirement assets and the conversion rate at retirement: the Substitute Institution usually offers the statutory minimum, some funds more. For a young employee the coordination deduction matters most; for an older one, the conversion rate too.

How to really compare the ~150 funds

Switzerland has close to 150 collective foundations and pension funds - with very different costs, funding ratios, interest and conversion rates. You can only compare them seriously with independent data, not with a single provider's brochure.

The most comprehensive public source is the independent pension-fund comparison at pensionskasse.com, which analyses over 130 funds across thousands of metrics. If you want to see which funds are genuinely strong, the annual PK-Award is an independent recognition of Switzerland's best pension funds.

pensionskasse.com - pension-fund comparison →PK-Award - best pension funds →

What you as an employer can actually do

You don't need to become a pension expert. Three pragmatic routes:

1Only need compliance? The Substitute Institution is correct and fast - done.
2Want to build your employee a real pension? Specifically ask for a plan with a reduced coordination deduction or insurance from the first franc.
3Unsure which fund? Compare independently first (see above) before you sign - switching later is more work.

Common mistakes when choosing a fund

1. Blindly taking the first fund

The Substitute Institution is convenient, but rarely the best pension for low wages. A quick comparison almost always pays off.

2. Only looking at the cost to you

Two funds can cost you a similar amount - and yet one builds the employee several times more savings. The coordination deduction decides.

3. Overlooking the coordination deduction

At a low wage it's the single biggest lever. A reduced deduction or 'from the first franc' changes the pension more than any interest rate.

4. Thinking per person instead of the whole household

If you employ several people at home, all of them should sensibly be insured in the same solution - it saves effort and cost.

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Get BVG right - whichever fund you pick

Clino works out the coordinated salary, the correct retirement credit and your employee's share, and shows everything transparently on the payslip. You choose the fund, we handle the maths. CHF 19.90/month.

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Frequently asked questions

Do I have to use the Substitute Institution?

No. You can affiliate with any collective foundation or pension fund. The Substitute Institution is only the fund that must accept you if you can't find or don't want to look for another. It's the fallback, not the rule.

What is the coordination deduction - and why does it matter so much?

The coordination deduction (CHF 26,460 in 2026) is subtracted from the gross wage because that part is already covered by OASI. Only the rest - the coordinated salary - is insured under BVG. At low wages almost nothing is left after the deduction, which is why better funds insure a reduced deduction or none at all.

What does 'insurance from the first franc' mean?

A plan with no coordination deduction: the entire wage is insured, not just the part above CHF 26,460. For a household employee on a low or part-time wage this is the biggest difference - the retirement savings can multiply.

Does a better fund cost me more?

Not necessarily much more. A higher insured wage does raise the savings contributions (half of which you bear), but an efficient fund's admin and risk costs can be lower than the Substitute Institution's. That's exactly why comparing pays.

Where do I compare pension funds independently?

The most comprehensive public source is the pension-fund comparison at pensionskasse.com; the annual PK-Award also names the strongest funds. Both are independent and evaluate the funds' published figures.

Does Clino help with BVG accounting?

Yes - Clino automatically calculates the coordinated salary, the age-based credit and your employee's share, and shows it all on the payslip, whichever fund you choose. Includes OASI/IV, accident insurance and the salary certificate. CHF 19.90/month.

Sources

Federal Social Insurance Office (BSV/FSIO) - Occupational pension provision, threshold amounts 2026: bsv.admin.ch
Federal Act on Occupational Pension Provision (BVG), SR 831.40 - Art. 7 (minimum wage), Art. 8 (coordinated salary), Art. 11 (affiliation); BVV 2 ordinance
Substitute Occupational Benefit Institution - duty to affiliate and costs: chaeis.net
Independent pension-fund comparison and PK-Award: pensionskasse.com, pk-award.ch

Threshold amounts and rates as of 2026. Individual funds' scheme rules and costs change continually - compare current figures before affiliating.