What is a 3rd pillar 3A?
The third pillar 3A is a very simple pension solution, which consists of setting aside money (between CHF 100 and CHF 588 per month) for retirement or early retirement, to buy a home or to become self-employed. It can be done either with a bank or an insurance company, and each has its advantages.
What makes the 3rd pillar 3A so attractive? (66% of working people own one)
The main advantage of Pillar 3A is that the money you put aside in this way is tax-deductible. You can deduct a maximum of CHF 7,056.- / year if you are employed, or CHF 35,280.- / year if you are self-employed.
On average, a retired person in Switzerland only receives between 50% and 60% of his or her last income, so we need to set aside additional savings if we don’t want to reduce our standard of living in retirement. Especially as we live longer and longer.
If you choose your 3rd pillar solution carefully, you can achieve excellent annual returns on the money you put aside. Which, over the years, represents an exponential return on your savings.
What are the advantages of the 3rd pillar 3A bank account?
The main advantage of the bank is that each year you choose the amount you want to set aside, depending on what you have available that year, giving you great freedom.
In banking, as there is no commitment on the amount or guarantee, there is no negative impact if you withdraw your 3A third pillar after just a few years (of course, you still have to meet the withdrawal conditions to be able to withdraw the money).
Recommended for: unstable or uncertain financial situations and 3rd pillar savings of less than 10 years.
What are the advantages of 3rd pillar 3A insurance?
With insurance, you commit to a fixed monthly or annual amount.
This gives you a contractual guarantee. of the minimum amount you will receive when you withdraw your 3rd pillar. This amount is guaranteed even in the event of disastrous financial markets or company bankruptcy. You can also decide to forego this guarantee to increase your potential return, by accepting the risk.
Insurance companies offer you life insurance linked to your 3rd pillar, which not only guarantees financial security for your family in the event of your death, but also reassures the banks when you plan to buy property jointly.
Insurance companies also offer a waiver of premium in the event of incapacity for work. This protects you against any health incident preventing you from working, and ensures that your 3rd pillar will continue to be funded “free of charge” until you retire (or recover).
You can also add to your solution a pension (generally ranging from around 10 to 30 thousand francs a year) which you would receive if you were no longer able to work due to accident or illness, thus supplementing the AHV and filling the gaps in it.
In insurance, thanks to the commitment that binds you to the insurer, money can be invested more effectively over the long term by them.
As a result, after around 15 years, insurance solutions offer higher returns than those offered by banks, even when compared with their riskiest solutions.
Recommended for: stable financial situations and 3rd pillars with savings of 15 years or more.
How can I compare 3A 3rd pillar products?
There must be around 150 different 3rd pillar offers in Switzerland, and they all have different projections and specificities.
To help you, we have developed a neutral, personalized comparison tool based on a quick online questionnaire.
You’ll get your personalized comparison in just a few minutes.
Compare 3rd Pillar solutions from 41 partner companies
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Example of 3rd pillar 3A comparison
- Ask us all your questions
- Request as many variants as necessary
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More details on withdrawal conditions
The primary purpose of 3A will be your retirement savings, however there are exceptions or conditions for withdrawing your 3rd pillar. These withdrawal conditions can therefore also be savings targets. They are present in both insurance and banking.
Your property. Isn’t that also one of life’s goals? Owning your own home is therefore one of the first conditions for withdrawal. However, it must be for a principal dwelling in which you will be living. This is one of the withdrawal conditions, but it’s not the only one. Let’s discover the other 5.
It can also be another important life goal. Becoming self-employed also allows you to use your 3rd pillar and withdraw it. However, it has to be on a self-employed basis, as defined by the AVS, and not simply as an investment in a company. From then on, you will have one year from the date you obtain the status to withdraw your 3A.
If you leave Switzerland and move abroad, you can withdraw your 3A without any further restrictions. You will simply have to leave Switzerland permanently at the time of withdrawal. You will, of course, always have the right to return to Switzerland afterwards.
Foresight also means providing financial protection in the event of serious disability. Being 100% disabled means that you can withdraw your 3rd pillar assets to meet your needs. Be careful, however, as some 3As offer disability and death benefits, and withdrawing your assets will result in the loss of these benefits.
You can withdraw your 3A up to 5 years before reaching legal retirement age. This is now at age 65 for both men and women, so you can withdraw your capital as early as age 60. The legal retirement age may change in the future, in which case this possible withdrawal date will also change. It will always follow legal retirement, minus 5 years.
Less well known, this option can be interesting if you want to increase your 2nd pillar pensions. However, you must still be able to make redemptions (available savings capital) from your 2nd pillar.
The three types of 3rd pillar solutions
Traditional
Return at risk
Guaranteed portion
Strengths and weaknesses
- 100% secure, no risk of loss
- Surplus or interest added to guaranteed capital
- Low yield
Potential yields
- Bank: capital saved + 0% to 1.5%.
- Insurance: capital guaranteed + 1.5% to 2%.
Mixed
Return at risk
Guaranteed portion
Strengths and weaknesses
- Possibility of defining a guaranteed minimum between 10% and 80%.
- High yields
- Innovative, dynamic solution
- Insurance exclusivity
Potential yields
- 3% à 8%
100% Investment funds
Return at risk
Guaranteed portion
Strengths and weaknesses
- Very high yield potential
- Wide choice of funds and investment themes
- High risk because nothing is secure
Potential yields
- 4% à 10%
- Possible negative returns
Is the third pillar 3A possible for residence permits?
Foreigners living in Switzerland and cross-border commuters can take out a 3rd pillar 3A, subject to certain conditions. Let’s find out which ones:
The form of the residence permit will only have an influence on the company or bank. It will be possible to take out a 3rd pillar 3A under certain conditions. From 2021, to be able to deduct your 3A when you are taxed at source, it will no longer be possible to make a simple rectification, as was the case until now.
From 2021, you will have to make an ordinary declaration, i.e. like a Swiss citizen. This will have a major impact on your tax situation, because instead of being entitled to flat-rate deductions, you will have to deduct your actual expenses. This change may be financially interesting for you, but not always. It is therefore advisable to carry out a simulation before requesting this change, as it will be definitive.
To be eligible, at least 90% of your income must come from Switzerland. Please note that once you have made your application, it will be compulsory for as long as you have your residence permit.
In the case of cross-border commuters, we hear a lot of misinformation. While many Swiss insurers have stopped offering a 3rd pillar to cross-border commuters, this is not the case for all companies, or even banks. The conditions have changed, however, and it is now compulsory to apply as a quasi-resident, i.e. an ordinary application like a Swiss person, to be able to deduct your 3A third pillar. We have a specialized page on the 3rd pillar 3A for cross-border commuters. The conditions of a quasi-resident are also regulated. In fact, 90% of your taxable income must come from Switzerland.
More details on the taxation of the 3rd pillar 3A
We have already seen that the maximum deductible amount is CHF 7,056 per year per employee, and CHF 35,280 for self-employed workers. But what is the real impact of this amount saved on your taxes?
Whether in banking or insurance, the amount invested in your 3A will reduce your taxable income. On average, 30% of the amount saved will be saved in taxes, equivalent to CHF 2,116 per year. But the higher your taxable income, the higher this sum will be, and it can sometimes be as much as CHF 2,900 a year.
What’s more, for the entire duration of the 3rd Pillar 3A, accumulated savings are not subject to wealth tax, nor are profits. It is therefore a very powerful tax tool.
However, you should be aware that you will be charged a one-off tax on the capital received when you withdraw your 3rd pillar. This tax is around 4% to 10% and depends on where you live and how much you receive. It goes without saying that this amount is much lower than the savings achieved year after year, and can even be optimized.
More information on the taxation of the 3rd pillar 3B, also deductible in Geneva and Fribourg
Who would inherit my 3rd pillar 3A in the event of my death?
As the Confederation grants us substantial tax savings, it also sets the legal framework for a 3A in the event of death, and therefore of inheritance. Here are the details of the beneficiary clause.
Let’s be positive and assume that you’ll reach retirement in great shape, while benefiting from your savings. In the event of your death, you will, of course, be the owner of your 3A savings.
If you are married or in a registered partnership (same-sex), your spouse must be the first beneficiary.
Direct descendants, such as your children, will be the next insured persons in the event of your death.
However, there are other people who may be beneficiaries in the same way as your descendants:
– Your dependents (at least 50%) at the time of death.
– Your partner with whom you had a child in common.
– Your partner, with whom you have lived together for at least 5 years without interruption.
Next come parents, in equal %.
Then brothers and sisters in equal %.
And, last but not least, the other heirs.
Interestingly, the first two levels (“spouses and registered partners” and “direct descendants”) cannot be modified or removed. The last 3, on the other hand, can be reordered as you wish and freely modified. You can therefore put other heirs first and freely choose the beneficiary or beneficiaries in the event of your death.
These clauses may also be subsequently modified at any time.
