In 2024 62% of Swiss people have a 3rd pillar, but what exactly is a 3rd pillar and what are these advantages?
What is the 3rd pillar?
It is a sum of money that you can accumulate during your working life in a bank or with an insurance company. The 3rd pillar is part of the Swiss pension system, it is a private and optional pension plan that aims to complement the benefits offered by the 1st and 2nd pillars.
There are two types of 3rd pillar: Pillar 3a, which offers specific tax advantages, but can only be withdrawn under certain conditions, and Pillar 3b, which offers greater flexibility, but does not offer dedicated tax advantages except in some cantons. Pillar 3a is the most popular and the most frequently adopted.
Why is the 3rd pillar important?
It is no longer a secret for anyone, our pensions are in danger and the majority of us will receive insufficient income to live comfortably in retirement by relying only on the 1st and 2nd pillars, a situation that is becoming even more pronounced with future reforms and the loss of our purchasing power due to inflation.
The reality is that pensions from the 1st and 2nd pillars generally only cover between 50% and 60% of your last salary before you retire. This proportion decreases even more if you have a high income. For example, In 2024, pension benefits received at age 65 amount to 4,078 francs on average, an amount that often struggles to guarantee a comfortable standard of living.
The aim of the 3rd pillar is to fill this gap. by allowing you to accumulate capital to supplement your income for retirement. By starting to save early and by contributing regularly to your 3rd pillar, you can significantly improve your retirement income to comfortably enjoy your old age.
Although the 3rd pillar is primarily designed for retirement, it also offers flexibility to fund other life projects, depending on whether you opt for pillar 3a (linked pension) or pillar 3b (free pension).
How can I withdraw capital from the 3rd pillar?
Pillar 3a
By default, the capital from the 3rd pillar 3a is used for retirement., this means that you can withdraw this capital at age 65.
However, it is also possible to withdraw it under certain conditions:
- Regular withdrawal: at retirement age, at age 65
- From the age of 60, it is possible to withdraw the capital to retire early
- The purchase of real estate that will serve as a main residence
- If you leave Switzerland permanently
- If you are starting a business as a freelancer
- If you become 100% disabled
If you decide to continue working after age 65, you can continue to make contributions and delay the withdrawal of your capital for up to 5 years.
Pillar 3a is therefore a locked savings that is only used for major projects, in return the Swiss Confederation encourages you to open a pillar 3a by significantly reducing the amount of your taxes. It is therefore one of the best ways to save for your projects while taking advantage of very advantageous taxation.
Pillar 3b
There are no conditions for withdrawing a 3rd pillar 3b, so you are free to use the accumulated capital at any time. However, pillar 3b generally does not offer tax advantages except in the cantons of Geneva and Fribourg.
What are the tax advantages of the 3rd pillar in 2024?
Pillar 3a
The Swiss Confederation encourages the opening of a 3rd pillar 3a by granting tax advantages that make it possible to pay less taxes each year.
3rd pillar 3a taxation is very advantageous, the amounts invested each year in pillar 3a are fully deductible from your taxable income
In 2024, the maximum amount that you can deduct from the 3rd pillar 3a is as follows:
- Up to CHF 7,056.- tax deduction per year for an employed person
- Up to CHF 35'280.- tax deduction per year for a self-employed person not affiliated to a pension fund (but at most 20% of net income)
Pillar 3b
At the federal level, there are no specific tax advantages for the 3rd pillar 3b, except in the cantons of Geneva and Fribourg where it is possible to take advantage of tax deductions.
Maximum deductible amounts in the cantons of Geneva and Fribourg
Who can benefit from the tax advantages of the 3rd pillar?
Pillar 3a and Pillar 3b tax deductions are possible unconditionally for Swiss citizens and C permit holders.
For people with other types of permits such as: B license, G license, L license and Ci license. It is necessary to meet certain conditions in order to benefit from the tax deductions of the 3rd pillars 3a and 3b, our articles on the subject will allow you to determine if this is possible for you.
What are the other benefits of the 3rd pillar?
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Who can subscribe to a 3rd pillar?
It is possible to subscribe to a 3rd pillar from the age of 18. We recommend that you do this as soon as you start working. Indeed, it is never too early to invest in a 3rd pillar.
Pillar 3a
Anyone receiving a lucrative income subject to AHV has the option of subscribing to a 3rd pillar 3a.
Employees as well as self-employed persons have the option of subscribing to pillar 3a. People receiving unemployment benefits can also subscribe to pillar 3a.
On the other hand, people with no income or at the end of their unemployment benefits are not eligible to subscribe to pillar 3a.
The 3rd linked pillar is available to residents in Switzerland as well as to cross-border workers working in Switzerland.
Pillar 3b
The subscription to a pillar 3b, also called free 3rd pillar, is not subject to no special conditions, it is available to everyone, even those without a lucrative income.
How do you choose between pillar 3a and pillar 3b?
The decision between these two options depends closely on your current financial situation, your long-term pension goals, and your personal and professional plans. To help you navigate this decision, we've written a detailed article that explores in depth the characteristics, benefits, and considerations specific to each pillar. This article aims to provide you with the information you need to make the right choice, aligned with your needs and future aspirations.
How do I launch my 3rd pillar?
A 3rd pillar can be launched either with the bank or with an insurance company, there are a multitude of different solutions on the market and it is highly recommended that you compare the various offers and options available.
It is also important to define which options and choices are most suited to your situation and your goals before launching your 3rd pillar, our article on the 4 steps before launching your 3rd pillar will help you make the right decisions.
Our advisors are also available to help and advise you, Indeed, unlike banks or insurance companies, we are an independent consulting company that partners with almost all banks and insurers on the market, we are therefore in a position to offer you all the 3rd pillar solutions currently available while advising you in a neutral and independent manner. Thanks to us you have a single contact person who allows you to compare and find the 3rd pillar solution that will be the most interesting for you.
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