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Retirement provision – The 3rd pillar
The final pillar of the 3-pillar pension scheme covers private provision and offers tax benefits to encourage personal savings. While every Swiss citizen makes compulsory payments under pillar 1 and the working population automatically contribute under pillar 2, Swiss third-pillar private pension provision is voluntary and serves as a supplement to maintain your standard of living during retirement, and as a means to close any gaps in pension provision.
Third-pillar pension arrangements take two different forms: a regulated pension (3a) and an unregulated pension (3b). For pension provision under pillar 3a, a regulated life insurance policy can be taken out with a Swiss insurance company, or a regulated savings or investment account can be opened with a Swiss bank. In each case your strong>savings accumulate as retirement funding, the only difference being that the insurance solution also provides death and disability cover. In contrast to pillar 3a requirements, the 3b unregulated pension offers more flexibility but without the tax advantages.
Regulated private pension provision under pillar 3a
The regulated pension provision under pillar 3a is part of the 3-pillar principle scheme which is funded by federal funds, thus any contributions paid are subject to tax. All savings which accumulate under pillar 3a arrangements are intended for the sole purpose of funding a retirement pension. Early access to these capital assets can only be granted in exceptional circumstances – for example, to fund a house purchase.
Flexible private pension provision under pillar 3b
The flexible pension provision under pillar 3b is likewise voluntary, but, unlike pillar 3a, does not offer any tax advantages. However, it is possible to use this option to create a retirement savings fund beyond the legal maximum or to use as a retirement pension – an arrangement which can remain entirely flexible.
Approved forms of pension provision under the third pillar
The third pillar offers different forms of investment depending on the type of pension provision. A regulated savings or investment account with a bank and a regulated life insurance policy with an insurance company will both be eligible under pillar 3a. In each case you must make regular contributions but will have no access to your capital before retirement, other than in exceptional circumstances – for example, if you used it to repay a mortgage. Unlike the bank solution, the life insurance policy option also includes death and disability cover. Which of these is the best choice will depend on your personal and financial situation, as well as your own particular preferences.
The flexible pension provision available under pillar 3b offers more options because there is no restriction on the term of the investment and your capital can be accessed at any time. Contributions paid under pillar 3b are not usually tax-exempt unless they are made under with-profits life insurance policies which become tax-exempt once they have been in force for ten years.
Maximum deposits under pillar 3a
The annual amount of the deposit which can be paid into a pillar 3a scheme is subject to a cap. For an employee who is a member of a pension scheme and automatically makes pillar 2 retirement pension contributions, the maximum amount which can be paid in under the 3rd pillar (as of 2018) is 6768 francs. Those who are self-employed, and anyone else who is not a member of a pension scheme, but who is still liable for AHV/ IV (Old Age, Survivors' and Disability insurance) contributions, can invest up to 20% of their net income under the 3rd pillar (as of 2018) subject to a maximum of 33'840 francs in any single year.
Advice on sensible retirement provision with favorable returns
Because Switzerland offers so many 3rd pillar options with different tax advantages, your personal solution should be tailor-made to match your requirements. Everyone has their own financial and personal priorities and your private retirement provision should reflect these demands accordingly. A personal consultation through MoneyPark will help you find the best options, secure your financial future, and enjoy a care-free retirement.
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