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Understanding the 3rd pillar

Are you one of those people who have life plans that require substantial savings, or who would like to be able to take full advantage of their retirement? It's true that in Switzerland, the first and second pillars fulfill this function, but they're often not enough. That's why it's a good idea to take out an individual pension plan. This is the third pillar, which offers many advantages...
In this article, Comparea provides some answers about how the third pillar works in Switzerland.

The third pillar in Switzerland: definition

In Switzerland, the retirement and pension system consists of three pillars, two of which are compulsory.
The first pillar consists of the AVS, which stands for Assurance Vieillesse et Survivants, and the Assurance Invalidité. This covers all people living and working in the country.
The second pillar corresponds to occupational pension provision (BVG), which is essential for all Swiss workers. By contrast, the third pillar remains optional, although very useful.
Indeed, when the time comes to retire, the two mandatory pillars can only guarantee an average of 60-70% of the final salary. This represents a rather substantial gap with the sums received during working life. However, this gap can be bridged with the 3rd pillar, also known as individual pension provision. This contract can only be taken out with banks or insurance companies, the only organizations authorized to market it.
The main aim of this private pension plan, which came into being in 1972, is therefore to supplement the pensions received from the two compulsory pillars, so that you can realize any plans you may have and enjoy a decent standard of living when you retire.

The different individual pension contracts

The third pillar is divided into two types: linked individual pension (or 3rd pillar 3A) and free individual pension (or 3rd pillar 3B). They differ in several respects, including contract duration, beneficiary clause, payment ceilings and taxation. What's more, each provident scheme meets different needs.
The 3rd pillar 3A is perfectly suited to a retirement savings project, a real estate purchase, an expatriation to a foreign country or even setting up as a self-employed worker. Linked individual pension provision also allows you a very attractive tax reduction, every year.
The 3rd pillar 3B, on the other hand, is more suited to savings projects over a well-defined period, given that the conditions for withdrawing paid-in capital are more flexible than for the 3rd pillar 3A. It is also important to note that the tax deduction for a free individual pension plan is only available to people living in the cantons of Geneva and Fribourg.

Advantages of subscribing to a 3rd pillar

Subscribing to an individual provident scheme allows you to enjoy many benefits depending on your situation and needs.
First and foremost, the Swiss 3rd pillar is an excellent solution for complementing your retirement and ensuring a peaceful life after you stop working. It also gives you the opportunity to build up an attractive capital sum to finance your projects. These may involve various works in your home or a professional project, for example. With this type of contract, you can even consider early retirement if you wish.
Another advantage that the third pillar can offer you is the possibility of protecting your loved ones. So, in the event of death or disability, they will be able to receive the full capital provided for when the contract was signed, if it was taken out with an insurance company. If you are no longer able to work, it is possible to add disability insurance to your policy. Please note that if you take out a 3rd pillar policy through a bank, only the sums paid in during your lifetime may revert to your heirs.
Last but not least, subscribing to a third pillar 3A allows employees and self-employed to deduct the contributions paid for the pension contract from their taxes. As for the 3rd pillar 3B, it also allows you to benefit from tax advantages since, thanks to it, you will be exempt from tax when you decide to withdraw your retirement capital, unlike the 3 eme pilier 3A...

Summary of the advantages of the 3rd pillar:

  • Complete your retirement
  • Protect your loved ones
  • Save on your taxes
  • Acquire real estate

The conditions for subscribing to a Swiss 3rd pillar

You can join an individual pension contract only if you meet certain conditions.
Concerning your age, you must be at least 18 at the time of taking out the 3rd pillar. The pension contract ends when you reach retirement age, but can be terminated 5 years before or continued until 5 years after at the latest.
Another element to take into account is your situation. For example, to qualify for Swiss 3rd pillar membership, you must work in the country, and as such, pay contributions to the AVS, the first pillar. However, this pension plan is also available to you if you are receiving unemployment benefit, but you should be aware that it will no longer be available to you when you reach the end of your entitlement. Subscribing to the 3rd pillar is also possible if you are receiving AHV benefits due to partial disability.
Finally, the third pillar is a pension plan for people living in Switzerland and those working there and residing in a foreign country, as well as frontaliers. However, since the federal law of December 16, 2016 came into force in January 2021, the latter must opt for quasi-resident status if they wish to take advantage of the tax benefits offered by tied individual pension provision, otherwise known as 3rd pillar A.

Swiss individual pension plan limits

By taking out a personal pension plan, you can ensure a secure retirement, but you should be aware that there are limits on the amount you can pay in between January 1 and December 31, which may change slightly from year to year.
If you're a salaried employee, you can invest up to 7,056 francs per year in your 3rd pillar 3A. On the other hand, if you are self-employed, without a 2nd pillar, contributions can amount to up to 20% of your annual net income, without exceeding 35,280 francs. It seems important to point out that you can absolutely pay the maximum amount in one lump sum.
As far as the 3rd pillar 3B is concerned, this is a contract that is not subject to any limit on payments over the year. If your situation allows, it can therefore offer you the opportunity to optimize your retirement provision through high contributions. Nevertheless, be sure to calculate in advance how much you can save in your 3rd pillar, to avoid impacting your day-to-day expenses.

3rd pillar withdrawal conditions

Generally speaking, you can withdraw the funds invested in your Swiss 3rd pillar when you reach retirement age, i.e. at 65 for men and 64 for women. However, it is also possible to unlock your savings 5 years before or up to 5 years after maturity.
There are many other cases in which you can recover the amount invested for your personal pension:
  • You leave Switzerland to move abroad. In this case, all you need to do is provide a certificate mentioning your departure from the commune to be able to collect your 3rd pillar.
  • You want to start your own business. For this, proof from the AVS specifying your new status will enable you to reclaim your 3rd pillar funds.
  • You want to become a homeowner by buying or building your main residence.
  • You receive a disability pension resulting from the 1st pillar.
  • You want to repay a mortgage.
  • You want to redeem years of contributions from the 2nd pillar so that your personal pension capital is higher when you retire.
All these exceptional conditions for withdrawal of assets apply to the 3rd pillar 3A only. If you opt for Pillar 3B, you will be able to withdraw your pension capital whenever you like. On the other hand, be aware that penalties will apply in the event of early withdrawal.

The third pillar in the event of death

If death were to occur, this would terminate the Swiss 3rd pillar pension contract and the capital would be paid to the beneficiaries, in the order specified by law if it were a 3rd pillar 3A. Thus, the beneficiaries would first be:
  • spouse married
  • direct descendants (i.e. children, grandchildren....)
  • the persons substantially maintained by the deceased
  • he or she who has formed a community of life with him or her for at least 5 years without interruption
  • he or she who must support common children
  • parents (one of the two only)
  • brothers and sisters
  • other heirs
It seems wise to emphasize the fact that the sum received by beneficiaries will be subject to inheritance tax.
In the case of a 3rd pillar 3B, heirs can be chosen freely, without corresponding to any particular order.

To sum up

To sum up how the third pillar works in Switzerland, note that it is above all a provident contract to ensure a secure retirement and supplement 1st and 2nd pillar pensions. Subscription conditions are relatively accessible, and many situations give you the right to withdraw the funds invested in your 3rd pillar.
If you would like further information about the 3rd pillar in Switzerland, please feel free to consult our guide Comparison of 3rd pillar offers: The complete guide
Joffrey Maitre
Updated on: 01/02/2024Written by Joffrey MaitreHead of private provision department at Comparea
To learn more about our team click here.

Frequently Asked Questions

The lump-sum retirement benefit can be paid out to the beneficiary at the earliest 5 years before the legal retirement age (64 for women and 65 for men). However, early payment may be made under the following conditions: Purchase of real estate for own use; Repayment of a mortgage; Redemption of years of pension fund contributions; In the event of divorce.

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