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Pillar 3a: Private pension provision with tax advantages
Under third pillar arrangements, the State pension and occupational pension are supplemented by a private pension provision. The bound pension 3a is funded by the state and thus enjoys certain tax privileges. It is aimed at all workers who are required to make AHV/ IV contributions. However, because pillar 3a offers tax benefits, there is an annual limit on the amount which can be paid in to build up a retirement pension. Nevertheless, you can still invest further capital in an unregulated pension under pillar 3b. MoneyPark can advise which pensions provide the optimal solution and which pension arrangement will best suit your needs.
The 3rd Pillar: Private pension planning and the reduction of your tax burden
A pillar 3a pension solution can be arranged either through a bank or with an insurance company. Bank products are usually pension accounts, pension funds or structured pension provision with capital protection. Compared with other savings products, your account balance will qualify for higher interest rates. With the insurance alternative, you can choose unit-linked or non unit-linked pension plans. Both 3a pension accounts and 3a life insurance products are regulated savings arrangements, and balances can only be withdrawn in certain specific instances, for example to finance a house purchase. Which solution is best in any particular circumstance can be determined by comparing the different products available under pillar 3a.
Pillar 3a contributions attract tax advantages: you will not have to pay wealth tax, income tax or withholding tax during the entire investment period. Contributions made under pillar 3a can be deducted from your taxable income up to the statutory maximum amount. The payments also attract tax advantages, because they are taxed separately from other income, and at a lower rate. If you open more than one account, you can also withdraw your capital on a staggered basis, and thus make further tax savings.
The statutory maximum amounts for the year 2020 are CHF 6826 and CHF 34128 respectively
You are free to decide when and how much to pay into pillar 3a, and you can also continue to make deposits into your account for up to five years after you have reached the normal AHV retirement pension age. However, you cannot make retrospective payments for previous years, either pro-rata or in full. You may only pay into pillar 3a up to the maximum amount for any current year, as the current tax period also applies to this arrangement. Like the calendar year, this runs from 01 January through to 31 December of each year.
A distinction is made between the larger and smaller pillar 3a schemes, and the maximum amount which can be paid in is also different in each case. The large pillar 3a scheme applies to all employees who are subject to AHV but who do not have an occupational pension plan. They can pay a maximum of 20 per cent of their net income. However, the smaller pillar 3a scheme is open to all employees and self-employed people who are already paying into an occupational pension plan. The maximum amount for each of these schemes is adjusted annually.
Statutory maximum amounts for pillar 3a in 2020
- Larger pillar 3a schemes: CHF 34128
- Smaller pillar 3a schemes: CHF 6826
Optimize your retirement provision with MoneyPark
Because of the special tax advantages, the maximum contribution amounts under pillar 3a are subject to regulation within the third pillar. Even so, there is no corresponding restriction placed on the unregulated pension provision under pillar 3b. However, the corresponding bank and insurance company products available under pillar 3b are usually fully taxable. Nevertheless, anyone who has reached the maximum amount under pillar 3a can utilize pillar 3b to accumulate further retirement income. Do you have further questions concerning the structure and regulations governing pillar 3a? At your request, MoneyPark would be happy to review your financial situation and provide you with the best possible retirement pension solution. Our pillar 3a calculator will give you a preliminary overview.
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