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3rd Pillar simply explained – Advantages and Functionality

Updated on November 16, 2023

AHV and the occupational pension fund alone are usually not enough to secure your customary standard of living in retirement. See our article “How to manage your retirement in Switzerland” for more basic information about the three pillar principle. In this article, we would like to talk about the two types of 3rd pillar, its advantages and how we can help you with finding your personal pension strategy.

3a – Restricted pension plan

Tied pension provision is long-term pension provision. As its name suggests, the capital remains “tied”. Advanced withdrawals are only possible subject to certain conditions, as for instance buying a house or starting a business. Generally, the capital paid into the pillar 3a can be disbursed at the earliest five years before you reach the regular AHV retirement age (65 for men, 64 for women). Men can continue to pay into pillar 3a with tax privileges until the age of 70 at most, and women can do so up to the age of 69 at most.

The pillar 3a in Switzerland offers various advantages. Besides the maintenance of the usual standard of living, tax deductions can be plead when paying in contributions. The amount of tax savings depends on the contributions you choose; the maximum amount for 2021 is CHF 6’883 per year and might help you to save up to CHF 3’000. Besides this, the pillar 3a is an investment with an optimal interest, what helps you to save even more money for your old days. Furthermore, disability and life insurance as well as premium waivers can be included.

Here are more information regarding the 3rd Pillar.

3b – Unrestricted pension plan

Pillar 3b flexible pension provision is a private pension solution ideally suited to close a pension gap according to your personal needs. As the name suggests, with the pillar 3b you have much more flexibility and less restrictions. It is not subject to government requirements or restrictions regarding amounts paid in, duration of the contract or pay-out date.  Therefore, you can freely decide for what purpose, when and how much of it you want to use. Unlike the pillar 3a, the surrender value is subject to wealth tax, though. In exchange, the payout is tax-free under certain conditions.

Having many years of experience, we know that pension in Switzerland is not an easy topic and that there is no general solution for a pension plan. Since every person has its individual needs, we would be happy to assist you in finding your personal pension strategy.  Get in touch with us via e-mail [email protected] or give us a call +41 44 552 72 32.

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Evgeniy Timoshenko

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