The third pillar simply explained - Everything you need to know about 3a and 3b

For personal retirement planning and family welfare, Switzerland has established a 3-pillar-system since 1972. The first, mandatory pillar consists of the old age insurance, also known as AHV. Its purpose is to ensure a minimum income to cover basic costs at retirement age. It is based on the principle of solidarity and is financed by the working population, which pays wage contributions. The second pillar, also known as the pension fund or BVG, is also mandatory for most working people and is intended to contribute to a higher income in retirement. 
The first and second pillars together cover only about 60-70% of the last income before retirement. If you want to maintain your standard of living after retirement, you should therefore consider the third pillar at an early stage. In this article, you will find all the important information about the two types of third pillar.

What is the third pillar?
The third pillar is an individual, private and voluntary insurance. You can take it out as long as you are gainfully employed. There are two types of third pillar: the tied pension plan, also known as pillar 3a, and the untied pension plan, which is also known as pillar 3b.

Who can pay into the third pillar?
All persons who are resident and working in Switzerland can open a pillar 3a. For example, sole proprietors or, under certain circumstances, ANobAG, who cannot join a pension plan, can also save for their pension with the third pillar. Pillar 3b can also be opened by persons who are not gainfully employed. 

What is the difference between pillar 3a and 3b?
Both pillars are part of private pension provision. However, there are various differences:

Tied pension plan (3a)

• With this, you can accumulate a savings balance for retirement age at an insurance company or bank.
• There is a maximum annual amount (2022: CHF 6,883.-) that can be paid in.
• Return on insurance of up to 3.6 % on average, higher interest than savings accounts
• Contributions to pillar 3a are tax-deductible, savings of up to CHF 3'000.- are possible.
• Certain conditions apply to the withdrawal of the savings capital
• A one-time tax (capital payment tax) is due when the savings capital is withdrawn

Unrestricted personal pension plan (3b)

• With this you build up savings in the form of cash, savings books, life insurance or investments
• No annual maximum amount
• The saved balance must be taxed as assets
• The savings balance can be paid out unconditionally and at any time
• No one-time tax is due on the payout
• The contributions made are not tax-deductible

What is the maximum amount that can be paid into Pillar 3a?
Individuals who already pay into Pillar 2a and are therefore affiliated with an occupational pension plan can pay in a maximum of CHF 6,883 in 2022. For employed persons who do not have an occupational pension plan, the maximum amount is 20 % of the earned income, with the maximum amount in 2022 being CHF 34,416 per year. 

How long can I pay into pillar 3a?
If you can prove that you are still gainfully employed after retirement age, you may continue to pay into pillar 3a for up to five years. However, as soon as you stop working or no later than five years after reaching regular retirement age, you must withdraw the capital. 

How can I save taxes with pillar 3a?
If you pay into the third pillar, you may deduct it from your taxes. The contributions made, up to a maximum of CHF 6,883 for employed persons with a 2nd pillar or CHF 34,416 for employed persons without a 2nd pillar, can be deducted in the tax return. The taxable income decreases, and due to the tax progression, so does the tax rate. Thus, as an employed person with a 2nd pillar, you can save up to CHF 3,000 in taxes per year. For employed persons without a 2nd pillar, the tax savings can be even significantly higher. 

When can I withdraw my Pillar 3a capital?
Pillar 3a capital can be withdrawn as early as five years before reaching the AHV retirement age (2022: women 64, men 65), but must be withdrawn no later than five years thereafter. In the context of retirement, this is also referred to as ordinary withdrawal. 
Under certain conditions, however, early payment of benefits from pillar 3a is also possible. Possible reasons for this are:

• Leaving Switzerland (emigration) 
• Taking up / changing to a self-employed activity
• Construction or purchase of owner-occupied residential property
• Death of the insured person
• Repayment of a mortgage
• Drawing a full disability pension

What is the advantage of a pillar 3a insurance?

• Guaranteed risk protection: With a pillar 3a pension solution from an insurance company, insurance coverage for disability or death is included. Depending on the need, in the event of disability either a premium waiver is included or an annuity is paid out to cover any loss of income. In the case of death insurance, a lump-sum death benefit is paid out to protect the dependents from the financial consequences of such a stroke of fate. 
• Optimal return: It is an interesting investment with an optimal return (average 3.6 % return over the last 20 years, can be secured annually).
• Waiver of premiums: in the event of disability, the insurance company will assume payment of the agreed premium on your behalf (on a pro rata basis in the event of partial disability), so that you will achieve your savings goal in any case.
• Adaptation to personal needs: With most providers, the agreed premiums can be adjusted to changing needs, and premium breaks are also possible
• Different models for all risk types: Adapt pillar 3a to your risk needs by choosing between pension policies with guaranteed capital or higher-risk, unit-linked pension policies

Would you also like to make provisions for your future and save retirement capital in an attractive and secure way with a third pillar? We would be happy to support you. Contact us now and receive competent and personal advice from insurance experts with many years of experience. We look forward to hearing from you!