The 3rd pillar in 10 questions: your complete guide

Who is the 3rd pillar for?

The 3rd pillar is for anyone seeking to supplement their pension provision to improve their financial comfort in retirement or to finance a life project such as buying a property. It can be taken out as soon as you reach the age of majority and no later than 5 years before you retire. At 30, 40 or 50: it's never too early or too late to open a 3rd pillar. It is worth noting that the qualifying conditions are slightly different, depending on whether you have a Pillar 3A or a Pillar 3B.

What are the differences between Pillar 3A and Pillar 3B?

The Pillar 3A is a so-called “tied” pension provision, while the Pillar 3B is a so-called “flexible” pension provision. They differ on three levels – primarily in the subscription conditions, tax advantages, and withdrawal conditions.

	Pillar 3A	Pillar 3B
Subscription conditions	To be able to take out a Pillar 3A, you must fulfil the following conditions: — Work in Switzerland as a resident or cross-border commuter. — Earn income that is subject to the AVS (OASI, Old Age and Survivors’ Insurance), as a salaried employee, freelancer, or through unemployment.	For a Pillar 3B, however, earning income and having a 1st pillar are not necessary conditions.
Tax matters	One of the big advantages of the Pillar 3A is that it is tax-deductible up to a certain amount.	The Pillar 3B can allow you to benefit from tax advantages, but only in certain cantons like Geneva or Fribourg.
Withdrawal conditions	Withdrawing funds from a Pillar 3A is much more restrictive and limited to specific reasons: — Buying or building your main residence; — A change in self-employment activity or formally becoming self-employed; — Leaving Switzerland definitively; — Early retirement.	Funds in a Pillar 3B can easily be withdrawn before the age of retirement. Bear in mind, however, that early withdrawal may be subject to penalties.

What are the tax advantages of a Pillar 3A?

The amount of your Pillar 3A contribution, your annual taxable income, your membership with a 2nd pillar fund, your family situation and your canton of residence are all criteria that influence the tax savings you can benefit from with your Pillar 3A.

Let’s look at 3 different examples:

Alex

Alex is single, has no children, and lives in the canton of Geneva.

Employed and therefore affiliated to a 2nd pillar scheme, he has an annual taxable income of CHF 60,000.

If Alex pays CHF 3,600 into his Pillar 3A, he will enjoy a tax savings of about CHF 1,059.

Marina

Marina is single, has no children, and lives in the canton of Zurich.

Self-employed, she does not contribute to the 2nd pillar, and has an annual taxable income of CHF 100,000.

If Marina pays CHF 35,280 into her Pillar 3A, she will enjoy a tax savings of about CHF 8'800 CHF.

Tim et Sandra

Tim and Sandra are married, have 1 child, and live in the canton of Fribourg.

Both are employed and each have a 2nd pillar; their joint annual taxable income is of CHF 140,000.

If Tim and Sandra each pay CHF 7,056 into their respective Pillar 3A accounts, they will enjoy a joint total tax savings of about CHF 4,600.

Contribute, yes, but how much and by when?

The amount is linked to the tax savings that can be realised. In theory, the higher the amount, the greater the tax savings. There are, however, contribution limits:

For the Pillar 3A, the maximum annual contribution is of:

• CHF 7,056 if you are registered with a pension fund (2nd pillar)
• CHF 35,280 (within the limit of 20% of your net annual income) if you are non-affiliated and self-employed.

As for the Pillar 3B, it is only subject to tax savings in the cantons of Geneva and Fribourg, each with different contribution limits.

In all cases, the payment deadline is important. To be taken into account for next year's tax, be sure to make your payment by latest 15 December of the current year.

When can I withdraw the funds from my 3rd pillar account?

Withdrawing funds from your Pillar 3A is usually done at legal retirement age. However, it is possible to make an early withdrawal under certain conditions: buying a property for use as a primary residence, starting a self-employed business, taking early retirement, or leaving Switzerland definitively.

You become the owner of your primary residence

There are two ways in which the 3rd pillar can help you buy your home: either to directly pay for part of your purchase, or as a guarantee. In the first case - the advance payment - you benefit from a lower mortgage and reduced interest charges.

In the second case – through pledging – you benefit from higher tax savings, depending on the interest charge, and you keep all your 3rd pillar pension assets. In addition, payments made into a Pillar 3A account can be used to pay off your primary residence directly or indirectly.

You launch your business as a self-employed person

If you are starting up a business as a self-employed person, you are entitled to withdraw your Pillar 3A, thereby freeing up funds to finance your project. This rule applies whether you have previously been employed or are already self-employed in another capacity. All you need to provide is an AVS (OASI, Old Age and Survivors Insurance) certificate to prove your status.

Note that as a self-employed person, 2nd pillar contributions are not compulsory. However, if you choose not to join a pension fund, you can pay up to 20% of your annual income - and a maximum of CHF 35,280 - into your 3rd pillar. This can be a very useful way of making up, even partially, any gaps in your pension provision due to not being a member of a pension fund.

You take early retirement

Early retirement is a valid reason for withdrawing your Pillar 3A - and a good one, too: you are preparing to stop earning a salary, which means your pension pillars will take over.

Before you take the plunge, make sure you have asked yourself the right questions, depending on your particular situation. There are three points to consider, all of which illustrate the importance of having contributed to a 3rd pillar to help you deal with the financial consequences of an early withdrawal:

• The pension you receive will be reduced according to the number of years between your retirement and the statutory retirement age.
• You will have to continue contributing to the 1st pillar (AVS) until you reach statutory retirement age.
• Employer contributions are higher during the last years of your working life, so you will be forgoing funds by retiring early.

You are leaving Switzerland definitively

Are you planning to leave Switzerland definitively and move abroad? This is a good reason to withdraw your Pillar 3A contributions, even if you have not yet reached statutory retirement age. To be able to withdraw your funds, you will need to provide your pension fund with a certificate of departure from your municipality of residence in Switzerland.

Regarding the Pillar 3B, the withdrawal date is mentioned on the contract you have with your insurance company and is closely linked to the guaranteed capital. While you can withdraw your funds before this date, you will only receive the surrender value rather than the capital you have saved up to that point.

What are the penalties for early withdrawal?

There are, strictly speaking, no penalties for withdrawing your Pillar 3A. When it comes to prematurely withdrawing your Pillar 3B, however, there are. This is compounded by a lower surrender value, especially if you make the withdrawal in the first few years after taking out the policy. To assess your situation, ask your insurer for a table showing the surrender value over the years.

Savings, investment fund… which options should I choose?

There are several ways of building up your Pillar 3A, each with its own advantages and disadvantages. With a Pillar 3A in the form of a savings account, you take few risks and ensure a fixed but moderately lucrative return. In contrast, doing so in the form of investment funds gives you the opportunity to diversify your portfolio, but does involve higher market risks.

You can also combine the two by investing part of your 3rd pillar in savings, and the other part in investment funds. Or, depending on the circumstances, you can combine them with a Pillar 3B insurance policy.

What are the advantages of taking out a 3rd pillar life insurance?

When you take out a 3rd pillar policy with an insurance company, you are offered life insurance. This is a good solution for protecting your family if the worst were to happen before you reach retirement age, because the full capital provided for in the insurance contract – rather than just the contributions you made during your lifetime – can be paid out to your heirs.

Optional disability insurance covers you in the event that you are no longer able to work and earn money.

Can I transfer my 3rd pillar from one bank to another?

Absolutely. If you find better conditions, or for any other reason, you can transfer your 3rd pillar funds from one bank to another, or from one bank to an insurance company, and vice versa. What's more, you will not incur any losses or be liable for any tax associated with this transfer of funds.

In order to carry out the transfer, however, the contract must have been concluded with your new pension institution and you must be able to provide formal proof thereof.

How is the money I invest protected?

The type of protection differs depending on whether the 3rd pillar is taken out through insurance, bank savings, or investment funds.

• For a 3rd pillar in insurance, the FINMA provides that in the event of insolvency, policyholders are to be given priority over other creditors and that insurance contracts are to be honoured as first priority.
• In the case of a banking 3rd pillar with a FINMA-licensed institution, deposits or savings accounts are guaranteed up to a maximum of CHF 100,000 per customer.
• Lastly, if you have opted for a 3rd pillar in funds, the risks are the same as those to which the funds themselves are exposed, i.e. those linked to market fluctuations.

Need personalised guidance? 

Our advisors are at your disposal to help you through the process. With a rate at 1.50%, Crédit Agricole next bank offers you one of the best interest rates on your Pillar 3A account.