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Paying into the Third Pillar
Private provision is secured in the Swiss pension system via the 3rd pillar. Anyone who pays, reduces or closes the precautionary salary, which remains in place despite benefits from the first two pillars - state and occupational pensions. These usually cover about 60 percent of the final salary.
If you want to close this gap or insure yourself against risks such as disability, invalidity or death, you can choose between banking products and insurance in the 3rd pillar. A distinction is made in private provision between the tied (3a) and the free provision (3b). For more information, please visit our three-pillar page.
Tax benefits for paying into the 3rd pillar
Unlike pillar 3bcolumn 3a grants tax privileges. A pension fund can only add capital to pillar 3a up to an annual ceiling and is, therefore, deductible from taxable income. Anyone who pays the tied pension (3a) receives a certificate from the institution with which they have set up the account at the beginning of each calendar year on the amount paid. This must be attached to the tax return.
For the 3rd pillar, the legislature annually re-establishes the amount which can be paid into the maximum pension fund. Two upper limits are drawn in the pillar 3a: the large and the small pillar. The maximum amount of the large pillar is valid for those who do not pay into a pension fund. As a rule, these are self-employed persons. However, the much lower cost of the small pillar is applicable to all who belong to a pension fund.
- The maximum amount of the large pillar (2019): CHF 34'128, or a maximum of 20 percent of net earned income.
- The maximum value of the small pillar (2019): CHF 6826.
It is largely free to the extent that the beneficiary arranges the payment into the 3rd pillar within the upper limit. Multiple accounts can be opened for different forms of protection at different banks and insurers. Such a division is even advisable, as this allows the phased payment of various 3a accounts. So account holders can save significant amounts of money in taxation.
Functional commitment in linked pension provision
Anyone who starts with the payment in the 3rd pillar (3a) should be aware that the capital is generally not available permanently. For the tax advantages, the amounts paid and possible net interest income remain earmarked in Pillar 3a. Thus, with the exception of a few exceptional cases, such as the financing of real estate (only for self-employment), the commencement of self-employment or permanent emigration from Switzerland, the capital can be used solely for old-age provision or insured claims.
As a result, assets held by the pension fund may not be disbursed until five years before the statutory retirement age. In addition, a beneficiary may continue to pay contributions to the 3rd pillar up to five years after the statutory retirement age if he or she is engaged in gainful employment.
Pay into Pillar 3b
Those who wish to make provisions for the maximum amounts of the column 3a can do so in the column 3b. Here one is only bound by the contractual content agreed upon with the bank or the insurance company. Since column 3b is not legally bound, there are also available short-term and riskier types of investment from which to choose.
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