- Pillar 3a is free and flexible, with no contribution limits or restrictions on use.
- It is open to all, regardless of age or professional status.
- It offers less advantageous tax treatment than Pillar 3a.
- The surrender value of Pillar 3b life insurance policies is taxed as a capital asset.
- Lump-sum benefits are often tax-exempt if they meet the pension criteria.
What is Pillar 3b?
In Switzerland, the pension system is based on three pillars. While the pillar 3a, or tied pension, is strictly regulated and provides significant tax benefits, pillar 3b offers a more flexible alternative that is accessible to everyone, without specific age or professional status limitations.
Who can benefit?
Pillar 3b is open to anyone residing in Switzerland. It is suitable for employees, self-employed individuals, and people without gainful employment, unlike pillar 3a (tied pension), which requires the policyholder to engage in gainful activity subject to AVS contributions or receive benefits from unemployment insurance.
What forms of investment are possible in a 3b pillar?
The free pension plan (pillar 3b) includes all forms of assets accumulated outside the 1st and 2nd pillars and pillar 3a. It offers a wide freedom and flexibility in savings and investment instruments, meeting a wide range of needs such as preparing for retirement, building wealth or protecting the family.
From this perspective, assets such as a property, valuable jewelry, or works of art can be considered part of free pension planning.
Savings and private accounts
Traditional bank accounts are the simplest and most accessible form of free pension planning. While they provide high security and immediate liquidity, their returns are generally low. They are best suited for short-term savings or maintaining an emergency fund.
Bonds
Bonds, whether government or corporate, generate stable income from interest. They present limited risk compared with equities, although their performance may be affected by interest rate and market trends.
Stocks
Stocks allow direct investment in companies, offering the potential for high returns over the long term, but with greater risk. They are suitable for investors aiming to maximize gains while accepting market volatility.
Investment funds
Investment funds pool diversified investments in stocks, bonds, or other financial instruments. They provide professional management and distributed risk, making them appealing to investors seeking a balance between returns and security.
Structured products
These financial instruments combine multiple assets or strategies to deliver optimized returns or partial protection against losses. They are suitable for experienced investors looking to diversify their portfolios with tailored solutions.
Insurance policies
Life insurance policies (mixed or pure risk) combine financial protection with savings. They provide coverage in case of death or disability while allowing the accumulation of capital for retirement or other projects. They are particularly suitable for families seeking to ensure financial support for their loved ones.
Pillar 3a taxation
Within the framework of Pillar 3b, only life insurance offer tax advantages. Subscribers can benefit from certain income tax advantages, enabling them to reduce their tax burden under certain conditions.
The rules for taxing Pillar 3b products have been harmonized at federal and cantonal level thanks to the LIFD (Federal Law on Direct Federal Taxation) and the LHID (Law on the harmonization of direct taxes).
Deductibility of life insurance premiums
Some Swiss cantons allow Pillar 3b life insurance premiums to be deducted from taxable income. In Geneva, contributions can be deducted up to a maximum of CHF 2,200 per year for a single person, CHF 3,300 for a married couple, plus an additional deduction of CHF 900 per child.
Other cantons do not allow life insurance premiums to be deducted under pillar 3b. This is the case in the canton of Vaud, for example.
Taxation of lump-sum insurance benefits
Capital-building insurance combines a long-term savings component with coverage against risks such as death or disability. These products can be taken out as pure savings insurance, which includes only a savings component, or as mixed insurance, which integrates both savings and death coverage. When a contract reaches its maturity or is redeemed, the accumulated capital is paid out to the policyholder or their beneficiaries.
In terms of taxation, capital benefits from these insurance policies are generally exempt from income tax, provided certain conditions are met. These conditions include that the insurance must be funded through periodic premiums, the contract must have been signed before the policyholder's 66th birthday, and it must have a minimum duration of 5 years.
In addition, the insurance must expire after the 60th birthday. If these conditions are met, the realized gain is not subject to income tax. If these criteria are not met, gains realized on the contract are subject to income tax like any other income.
Lump-sum benefits and annuities from pure risk insurance
Pure risk insurance focuses exclusively on covering risks such as death or disability and does not include a savings component. In this case, the benefits paid upon the occurrence of the insured risk (death or disability), as well as annuities, are fully taxed as income. Similarly, any surplus or bonus accompanying these benefits is also subject to income tax.
Capital benefits received following an insured event are taxed according to the pension rate, which is a reduced rate applied separately from other income. This provides beneficiaries with more favorable tax treatment for these benefits.
Lump-sum benefits and annuities from pure risk insurance
Old-age insurance and life annuities provide the insured with a regular income until death, or for the duration of the contract. They may include a return capital in the event of death, paid to the beneficiaries.
Periodic annuities and surpluses are subject to income tax, often at a reduced rate depending on the canton. Restitution capital may be subject to inheritance tax, except in certain cantons such as Schwyz and Obwalden. Capital benefits are generally partially tax-exempt, with taxation limited to 40 % at federal and cantonal level, subject to specific cantonal rules.
Earnings and cash surrender value
Gains (interest, premiums, surpluses) remain tax-exempt as long as the insurance contract is active. However, if the insurance is redeemable, its value is subject to wealth tax throughout the duration of the contract.
Capitalization contracts
From a tax perspective, capitalization contracts do not offer the same benefits as pillar 3b products, although they are often used as a free pension planning tool. The interest gains generated by the capital are subject to income tax, while the contract value is included in the assessment for wealth tax.
On the other hand, the repayment portion of the capital remains tax-exempt. These features make capitalization contracts a tax-neutral investment option, suitable for people looking to plan their savings over the medium to long term.
Frequently Asked Questions
What is Pillar 3b?
Pillar 3b is a free and flexible pension solution in Switzerland, allowing you to save or invest without contribution limits or restrictions on use.
It complements the 1st and 2ᵉ pillars, as well as pillar 3a, and can include a variety of products such as life insurance, savings accounts, or investment funds.
Who can subscribe to Pillar 3b?
All Swiss residents can take out a Pillar 3b, regardless of age, professional status or income. It is available to salaried employees, the self-employed and those not in gainful employment.
Are there any tax advantages to Pillar 3b?
The tax benefits of Pillar 3b are limited. Unlike Pillar 3a, premiums are not tax-deductible, except in certain cantons such as Geneva.
However, gains generated by contracts (interest, surpluses) are tax-exempt for the duration of the contract. The surrender value of life insurance policies is subject to wealth tax.
Can Pillar 3b funds be withdrawn at any time?
Yes, Pillar 3b funds can be withdrawn at any time, depending on the conditions of the product taken out (for example, endowment life insurance may have restrictions linked to the term of the contract).
Are lump-sum benefits taxed?
Lump-sum Pillar 3b benefits are often exempt from income tax if they meet the criteria for individual pension provision (minimum contract duration, maturity after age 60, etc.).
