Everything you need to know about the 3rd pillar for cross-border commuters

To ensure that your standard of living doesn't fall when you retire, it's important to build up your pension capital with a 3rd pillar. Since a federal law came into force in 2021, the tax deduction for cross-border workers has been called into question. But then, are there still any advantages to taking out a 3rd pillar cross-border worker? The answers can be found in this article.

The Swiss pension system is not the same as that of France. In fact, it is made up of the 1st pillar made up of old age and survivors' insurance (also known as AVS), the 2nd pillar corresponding to occupational pension provision and the 3rd pillar which concerns individual pension provision. The first two pillars are compulsory for all Swiss residents and cross-border commuters. The 3rd pillar, on the other hand, remains optional, although it is very useful for taking advantage of additional savings to ensure a comfortable standard of living in retirement.

There are two kinds of 3rd pillar. Linked pension provision, also known as 3rd pillar 3A, offers attractive tax benefits. A cross-border commuter can take out this pension contract, but will only be able to take advantage of the tax breaks if he or she has quasi-resident status. Free pension provision, which is no other than 3rd pillar 3B, offers greater flexibility and freedom to the policyholder.

In 2024, the maximum amount payable with a 3rd pillar 3A is CHF 7,056 per year, for working people with a pension fund. For working people without a pension fund, 20% of net income can be paid in, up to a maximum of CHF 35,280. On the other hand, there is no limit to the amount that can be paid into the 3rd pillar 3B.

You should also be aware that a large number of insurance companies have stopped offering 3rd pillar contracts to cross-border commuters, following a request to this effect by FINMA, Switzerland's banking and insurance supervisory authority. Fortunately, there are still a few establishments where it's possible to take out a cross-border 3rd pillar, but since this is becoming increasingly rare, avoid waiting too long if you're thinking of doing so.

For a cross-border commuter as much as for a Swiss person, the 3rd pillar offers many advantages, in addition to tax deductions.

Given that the pension funding system is becoming increasingly unstable in France, it can be interesting for a cross-border commuter to be able to bank on Swiss pension provision. An employee who has worked in Switzerland all his or her life, or who is simply Swiss, can obtain up to 60% of his or her income from the 1st and 2nd pillars. A cross-border commuter who has worked part of the time in France and receives an inadequate Swiss pension can take out a 3rd pillar to make up the shortfall. It should be pointed out that if a cross-border commuter were to leave Switzerland, he could still recover his pension capital under certain conditions, or keep his 3rd pillar and fund it from abroad if he intends to return to work in Switzerland one day.

As well as being a savings solution, the 3rd pillar taken out with an insurance company represents effective protection for you and your family. If you are unable to work, the insurance company will take over and pay the premium for you, subject to certain conditions. The 3rd pillar also allows you to pay a capital sum, defined in advance, to your beneficiaries in the event of your death.

If an economic crisis were to occur, it would not affect your 3rd pillar. In fact, as it is a pension product regulated by FINMA in Switzerland, its capital is guaranteed. In addition, you can save in the currency of your choice on a 3rd pillar: in Swiss francs to benefit from a safe and solid value, or in euros if you are a cross-border commuter and this currency suits you. Finally, you should know that when you retire, you can also benefit from a guaranteed capital sum, to which surpluses can potentially be added.

Since 2021, a federal law has come into force concerning the cross-border 3rd pillar. The latter can no longer be tax deductible, which is very annoying given the tax savings it could represent every year. Fortunately, there is a way for cross-border workers to keep the tax advantages offered by the 3rd pillar: obtain Swiss quasi-resident status. This allows the frontier worker to file a tax return similar to that of a Swiss citizen. Travel expenses and payments into a 3rd pillar 3A or a 3rd pillar 3B can be deducted. To do this, you need to submit a request for withholding tax adjustments to the tax authorities within the allotted timeframe.

To qualify for this status, cross-border commuters must meet a number of conditions, including having 90% of their household income taxed in Switzerland. As many cross-border commuters have a spouse who works in France, this requirement is not always easy to meet. It seems sensible to specify that the income included in this 90% concerns:

Quasi-resident status can only be granted to a frontier worker in the cantons of Geneva and Fribourg, since the others do not practice taxation at source.

In the case of a self-employed worker who carries out his activity in Switzerland but resides in France, his taxation is carried out in Switzerland.

For a retired person who lives in France but has Swiss nationality, the 1st pillar AVS pension is taxed in France, while the public law pension fund pension received is taxed at source. A retired cross-border commuter who receives a 1st pillar pension and possibly a 2nd pillar pension is taxed in France.

Furthermore, as far as the taxation of a cross-border commuter is concerned, he cannot benefit from any tax advantages in France and is not taxed on his 3rd pillar payments.

The cross-border 3rd pillar therefore appears to be a good solution for saving safely and enjoying a good retirement when the time comes. However, it's becoming more and more difficult to take out this pension contract, as few establishments offer it. That's why you should talk to a financial advisor, who will be able to find the best option for you and answer any questions you may have.