Pillar 3a VS 3b: The main differences

In Switzerland, the 3rd pillar is essential to fill the pension gaps left by the other two pillars. Indeed, it's important to think early enough about saving money for your retirement. But did you know that the latter is divided into two parts: pillar 3A vs. 3B? One can be taken out at a bank, the other through insurance. In fact, these two types of pension provision differ in many other respects, as described in this article. This should help you choose between 3rd pillar A or B...

The 3rd pillar, also known as individual pension provision, allows you to save to ensure a comfortable capital sum for your retirement. One of the major differences between a 3rd pillar 3A or 3B is the reasons why you can receive the amount you have saved. In the case of a 3rd pillar 3A, or linked pension plan, you can only obtain payment of the capital in the following situations:

As for 3rd pillar 3B, or free pension provision, the payment can be made at any time. This makes it an ideal solution for medium- to long-term goals, such as buying a home. Free pension provision is, as its name suggests, more flexible than Pillar 3A.

With Pillar 3A, your investment opportunities are fairly limited. Contributions can be deposited in a 3A retirement savings account. They can then be invested, in part or in full, in a pension fund. This can be interesting if you have return objectives. Pillar 3A also gives you the option of taking out 3A life insurance, to protect your loved ones financially in the event of unforeseen circumstances.

Pillar 3B, meanwhile, offers much more varied investment solutions, as it is not dependent on any government rules. So, you can choose where to invest your retirement provision money between these different products:

Whether it's a 3rd pillar A or B, tax benefits apply. First of all, you can deduct your contributions from your taxable income. In fact, in 2024, you may pay a maximum of CHF 7,056 into your 3rd Pillar A. Another significant advantage concerns your retirement capital and its proceeds, which are fully exempt from withholding tax, income tax and wealth tax. This applies for the entire duration of the insurance contract.

Free pension provision, on the other hand, is more limited than the 3rd pillar 3A in terms of taxation. Nevertheless, when it comes to payments, there is no limit to the amount you can deposit in Pillar 3B. As far as tax benefits are concerned, your premiums can be deducted from your taxes at a reduced rate, depending on the cantonal laws that apply to your situation. Interestingly, the cantons of Geneva and Fribourg offer attractive tax deductions for life insurance contributions. Pillar 3A, on the other hand, is subject to wealth tax. What's more, when your unrestricted pension contract comes to an end, your final capital and its interest are fully tax-exempt.

Among the specific features of pillar 3A or 3B individual pension provision, it makes sense to mention the conditions to be met when subscribing to a contract. Linked pension plans are reserved for Swiss residents whose income is subject to AVS (old-age and survivors' insurance). This includes employees and the self-employed, as well as people receiving unemployment benefits. It is possible to take out a linked pension plan with a bank. With a Pillar 3A plan, the beneficiaries in the event of the policyholder's death are defined by law. The capital would therefore go first to the spouse, then to the children.

There are no prerequisites for taking out a free pension contract. So, regardless of professional situation or place of residence, anyone can consider opening a Pillar 3B and depositing money into it, with the aim of saving for retirement or simply to realize certain projects. However, unrestricted pension provision can only be taken out with an insurance company. Finally, as far as inheritance is concerned, beneficiaries can be chosen freely, unlike with tied pension provision. In conclusion, there are indeed differences between an A and B 3rd pillar. However, both types of personal pension plan have the same main objective: to provide you with a money-saving retirement. All you have to do is choose the one that best suits your needs and expectations, in terms of tax benefits, investments (accounts, funds, life insurance, etc.) and the terms and conditions of each contract. If you would like more information, please do not hesitate to contact a financial advisor.