The Third Pillar in Switzerland
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The Third Pillar - A key element of individual retirement planning
The Swiss social security system is based on three pillars. The Third Pillar represents the component optional and individual of the pension plan, designed to supplement OASI (1st pillar) and pension fund (2nd pillar) benefits. It is particularly useful for filling pension gaps and planning one's financial future more flexibly.
Types of Third Pillar
There are two main forms of Third Pillar in Switzerland:
- Pillar 3a (constrained):
Reserved for those in gainful employment (employees or self-employed), allows annual contributions deductible from taxable income. It is subject to certain limits and constraints (e.g., withdrawal only in specific cases). - Pillar 3b (free):
More flexible, accessible even to people without gainful employment. Does not provide immediate tax benefits but offers broad freedom in managing and withdrawing capital.
Key benefits of Pillar 3a
- Tax benefits: Contributions made in Pillar 3a can be deducted from taxable income up to an annually determined limit (CHF 7,056 for employees in 2025).
- Retirement planning: Allows to compensate for gaps in public and occupational pension plans.
- Flexibility for specific goals: You can use the funds for the purchase of your first home, starting a self-employed business, or if you move abroad permanently.
- Additional protection: Includes coverage in case of death or disability. If the insured can no longer work, the insurance covers the remaining premiums, guaranteeing the final benefit.
- Succession planning:
In the event of death, the lump sum is paid out to the designated beneficiaries without going through probate (in many cantons, tax-free). Legitimate obligations for heirs are thus avoided (complete freedom to choose the beneficiary or beneficiaries)
Limits and conditions of Pillar 3a
- The capital is generally tied up until five years before the ordinary OASI retirement age.
- Early withdrawal is allowed only under certain circumstances (e.g., buying first home, starting self-employment, emigration, early retirement).
- Benefits are subject to separate and preferential taxation upon withdrawal.
To avoid the constraint and have the option of early withdrawal, one can opt for Pillar 3b. 3b can also have significant advantages when applying for credit from banks (better interest rates and easier credit granting). However, with 3b you lose the tax advantage.