Swiss 3rd pillar: the essentials
What is the 3rd pillar?
In Switzerland, the 3rd pillar complements the other two pillars:
- 1. The first pillar (AHV)
- 2. The second pillar (BVG)
In Switzerland, the 3rd pillar complements the other two pillars:
The main objective of the 3rd pillar is to maintain the standard of living after the retirement. The first pillar guarantees a minimum standard of living, while the second pillar complements the first, bringing the standard of living closer to that before retirement.
Who can take out a 3rd pillar?
All Swiss citizen or individual resident legally resident in Switzerland can contribute to the 3rd pillar, even people not in gainful employment (except 3a).
However, it is worth noting that a third pillar can be very useful for workers. independent workerwho do not necessarily contribute to the 2nd pillar. additional safety to their pension plan
In Switzerland, there are two types of 3rd pillar: pillar 3a (restricted pension provision) and pillar 3b (unrestricted pension provision). Both have their own special features.
Pillar 3a (tied personal pension provision)
Pillar 3a is encouraged by the Swiss Confederation. To this end, tax deductions and easier access to home ownership have been introduced.
Taxation
The tax treatment of Pillar 3a is considered advantageous. Contributions are tax-deductible (although benefits are taxed in full).
Withdrawal from Pillar 3a
Unlike Pillar 3b, which we'll look at next, Pillar 3a cannot be freely withdrawn.
Retirement
You can only withdraw your tied Pillar 3a when you retire. You can choose to benefit from your Pillar 3a (including interest) in the following ways:
- In the form of an annuity
- Capital
Departure from Switzerland
You can also withdraw your entire tied 3rd pillar when you leave Switzerland.
Becoming self-employed
If you become self-employed, you have the right to withdraw your tied pillar 3a. To do so, you'll need to provide the AVS certificate certifying your self-employed status.
Buying a property
Pillar 3a also allows you to withdraw part or all of your capital if you buy your principal residence.
3a pillar types
There are two types of Pillar 3a pension plan.
Pensions linked with an insurance company:
This type of 3a pillar is a life insurance linked to your pensionguaranteeing a sum of money on retirement. retirement or during the deathwhich guarantees a certain amount to the beneficiaries (family). This type of 3a pillar is particularly suitable for forward-thinking individualswith a focus on fund security.
Pensions linked with a bank foundation:
The second type of Pillar 3a is the restricted pension account with a banking establishment. It is in fact a retirement savings managed by a bank or banking foundation.
This pension plan offers higher yieldbut it is also more riskybecause the funds are invested in investment funds (or investment chosen by the beneficiary).
Pillar 3a highlights
- Tax deductions for contributions
- Easier access to property
- Withdrawal only on retirement
- Partial or total withdrawal for the purchase of a principal residence
- Withdrawal as annuity or lump sum
- Underwriting with an insurance company or banking foundation
Pillar 3b
Pillar 3b is a free pension plan. This means it can be used for any type of savings project (but also for retirement).
Taxation
Unlike Pillar 3a, payments made to your Pillar 3b are not taxed. not deductible from your taxes. Gains made on your Pillar 3b are subject to income tax.income taxand your entire pillar is subject to thewealth tax.
However, depending on the investments chosen, certain deductions and tax benefits may be available.
Which investments?
You can contribute to your Pillar 3b in a variety of ways. In general, investments include:
- Savings accounts
- Investment funds
- Stocks and bonds
- Financial products
- Insurance policies
Key points of Pillar 3b
- More freedom, flexible use
- Gains subject to income tax
- Pillar subject to wealth tax
- Savings accounts
- Investment funds
- Equities and bonds
- Financial income
- Insurance policies
How to make the right choice?
Savings targets
Pillar 3a is designed for retirement provision. So, if your aim is to secure your income for retirement and benefit fromtax savingspillar 3a is the best alternative.
On the other hand, if you want a more flexible option that you can use for a variety of projects of your choice, Pillar 3b will be more suitable.
Tax benefits
Pillar 3a offers tax deductions for contributions, which can reduce your taxable income at the end of the year. Pillar 3a withdrawals, on the other hand, are fully taxed.
Pillar 3b does not allow tax deductions for contributions, but offers greater flexibility of use. Gains are subject to income tax, while accumulated capital is subject to wealth tax. However, specific Pillar 3b investments may offer additional tax advantages.
Type of investment
Pillar 3a investment options are often less risky and more geared to the future. security of funds (life insurance, pension accounts). Pillar 3b allows a wider range of investments, including savings accounts, investment funds, equities, bonds and various financial products, often offering higher returns, against a high risk as well.
Frequently Asked Questions
How does the 3rd pillar work in Switzerland?
The 3rd pillar complements the 1st (AVS) and 2nd pillars (LPP). There are 2 types of 3rd pillar.
Linked pillar 3a:
Pillar 3a is designed to ensure a secure retirement, but can also be withdrawn when purchasing a principal residence, moving abroad or starting a self-employed business. Contributions are tax-deductible.
Pillar 3b:
Pillar 3a is a savings and investment solution rather than a retirement plan. Contributions and withdrawals can be made to Pillar 3b at any time. Earnings are taxable.
When can the 3rd pillar be accessed?
It is possible to draw on your 3rd pillar 3a on departure retirementthecat a residence the beginning of a self-employment or a going abroad. Pillar 3b can be removed at any time.
What are the 3 pillars in Switzerland?
The 3 pillars of pension system Switzerland are:
- AHV (1st pillar)
- LPP (2nd pillar)
- 3rd pillar (3a and 3b)
Who can have a 3rd pillar?
Pillar 3a
- All Swiss residents can open a Pillar 3a account
- Salaried and self-employed workers can contribute to Pillar 3a
- Can be opened until retirement age
Pillar 3b
- Available to all residents, regardless of employment or professional status
- More flexible with regard to age and professional status
What are the contribution limits for the 3rd pillar?
Up to CHF 7056.- per year for employees on a pillar 3a.
For the self-employed, you can pay up to CHF 35,280 annually (20% of income).
For the pillar 3bpayments can be made freelywithout limits.
