Are you making the most of the Swiss System?
Find out everything you need to know when it comes to choosing a 3rd pillar
On this page you will find a complete overview of all the key points on the Swiss 3rd pillar system. You can use the form to request a free 3rd pillar guide for help on choosing between your various options. For any additional questions you might have, simply hit the ‘chat with us’ button in the bottom right corner. You can also use the form at the bottom of the page to easily request a free 3rd pillar quote straight away.
Are you eligible for a third pillar?
In order to apply for a 3a pillar you must be a gainfully employed person in Switzerland and pay AHV Contributions. As for a 3b pillar, anyone living in Switzerland is eligible.
What is a 3rd Pillar?
In Switzerland, the Swiss pension system is known as the 3 pillars. Your 1st pillar is your state pension, which is generated through your monthly AHV contributions. Your 2nd pillar is your occupational pension contributed towards by your employer and / or you. These two form the main basis of your pension at retirement.
The 3rd pillar is an additional private plan that allows you to contribute extra towards your retirement and you can contribute up to 6,826 CHF a year (allowance for 2020). The original idea behind a 3rd pillar was to make up any potential shortfalls between your final salary and your workplace pension, however third pillars also offers a number of other benefits including various tax advantages.
Most individuals in Switzerland will have some form of 3rd pillar, be it with a bank or insurance company. As for which option is best for you will depend on a number of factors.
There are a number of benefits to having a third pillar. Some of the main benefits include:
– Reducing your income tax liability
– Reducing your pension shortfall at retirement
– Contributions are exempt from wealth tax as well as income tax on the interest and capital gains
– Policies can offer a guaranteed minimum growth amount and a guaranteed capital on maturity
– A 3a can be used towards purchasing a property
– Life insurance and disability benefits can be included within a 3a
– On becoming self-employed, 3a contributions can be used to help set up your business
Types of 3rd Pillar
Whilst there are various different providers of 3rd pillars each with a variety of benefits, all 3rd pillars are based around two types. 3a pillar and a 3b pillar. Which option you pick will depend entirely on your circumstances and ultimately what you are hoping to achieve with your pillar. Listed below you will find an explanation of the two types and some of the key differences between them.
A 3a plan is suited towards those earning an income and allows you to pay up to a set amount into the plan through either a bank or insurance provider. A key benefit of the 3a is that your contributions can be deducted from your taxable income.
The amount you can contribute towards a 3a will depend on whether you have a workplace pension or not. Those in employment with a workplace pension will be able to contribute up to a maximum amount, set each year by the Federal Social Insurance Office.
In 2016, employed individuals with a workplace pension can contribute up to CHF 6’768 per annum.
Individuals without a workplace pension such as the self-employed can contribute up to 20% of their income or up to a maximum of CHF 34,128 per annum.
A 3b pillar is a fully flexible and an unrestricted pension plan that can offer wider investment options. You can also have a 3b in addition to your 3a policy.
With a 3b there is no limit on the amount you can pay into the plan and you can also withdraw funds from a 3b before retirement age. A key benefit on a 3b is its ability to reduce your wealth tax liability.
Whilst a 3b offers more flexibility than a 3a, there are generally less tax advantages in comparison to a 3a. Nevertheless, funds released before retirement age will be taxed at a much lower rate.
Did you know? In certain cantons you can even reduce income tax liability if you have made contributions to a 3b!
Insurance vs Bank
There are a number of differences between a 3rd pillar with your bank and with an insurance company. Listed below are some of the key differences.
A 3a with an insurance company tends to in most cases offer a number of additional advantages. Most will offer a guaranteed capital on maturity, a steady accrual of pension capital as well as complete protection on the full capital (by law). The capital is protected even if the insurer goes bankrupt.
A bank however will normally only guarantee up CHF 100’000, nor offer a guaranteed capital on maturity. You also have the added benefit of a guaranteed minimum interest amount, which normally isn’t possible with a bank.
A further key advantage of a 3a with insurance is the ability to include life cover protection in case of death or occupational disability. Most insurance policies can also be adjusted if your circumstances change and can even offer premium holidays of up to 4 years.
The main benefit of a 3a with your bank is the flexibility it can offer. With a bank, you can make payments on a voluntary basis and at any time. You also have no payment obligations nor a contract term. You can even change banks if you wish. The compromise to this however can be the overall limit on benefits and features vs an insurance option.
Overall a bank is a choice suited to those that require flexibility above all else. However if you are committed to a 3rd pillar and want to get the most out of your policy (including life cover), an insurance option might in fact be best. Ultimately your decision should be based on what it is you want to achieve with your 3rd pillar.
Funds paid into a 3a are locked into the policy until retirement age. There are however some exceptions to this, which are as follows:
If you want to use it to buy or build a property.
You leave Switzerland permanently.
You set up your own business.
If you are unable to work and you draw full invalidity benefit.
Naturally there may be some conditions to the above points, which will vary dependent on which provider you select for your 3rd pillar.
You can also withdraw money from your 3a up to 5 years before the official retirement age, however the full amount must be withdrawn by this date. If you choose to remain in employment after your retirement age, the full amount must be withdrawn up to 5 years after your official retirement age.
Note – Terms of withdrawal and valuations will vary dependent on the provider you have.
Choosing a 3rd Pillar
Choosing the right 3rd pillar can be a bit confusing. First of all you need to:
Decide which type of 3rd pillar you want.
Decide whether you want a 3rd pillar with a bank or insurance provider.
Once you’ve then decided on this, you then need to choose between the various bank or insurance options.
This is where we come in. We can help you decide which 3rd pillar will best deliver the features you require and then recommend the best solutions available to you. Simply complete the form to receive a instant quote or give us a call to find out more information about your options.
Note – Our service is entirely independent, as we have access to all providers and will only recommend the option best suited to your requirements. This service is also complimentary and furthermore, it is entirely at your discretion whether you choose to act on the advice we provide or not.
Why Use Us?
An Informed Decision – We can help you quickly identify the best 3rd pillar options available to you, such that you can easily compare between the various options.
Peace of Mind – If you do end up choosing to proceed with a 3rd pillar, you can be sure that you will have picked the best possible option for you.
A Simple Process – With so many providers to choose from, each with an array of different benefits, we can save you heaps of time and effort in finding the perfect solution.
Everything Explained – The finer detail / conditions of a policy can sometimes be a bit confusing, however we can help you be sure of exactly what you are committing to.
Hassle Free – We can generate tailored quotes straight away if required and even complete the majority of paperwork on your behalf, keeping everything nice and simple.
Already have a 3rd pillar?
If you already have a 3rd pillar with your bank, you can switch to an insurance equivalent. Most people get offered a 3rd pillar when they open their bank account and don’t put much thought into it after, let alone consider an alternative and potentially better option. A 3rd pillar with an insurance provider will vary quite significantly to a bank equivalent and in most cases can also offer a number of additional benefits. As for which option is best for you will depend on your circumstances.