Everything you need to know about 3rd Pillar B

Would you like a pension plan that offers you flexibility and freedom? With a 3rd pillar 3B, you can save according to your needs and desires, with no constraints on duration or amount. It's also an excellent product for protecting your loved ones in the event of financial difficulty. In this article, you can find out more about how the Pillar 3B pension contract works and its advantages.

In Switzerland, the pension system is made up of three pillars. The 1st is compulsory and corresponds to AHV and IV. The 2nd pillar covers occupational benefits. Finally, the 3rd pillar is represented by individual pension provision, and is divided into two parts: tied pension provision - or 3rd pillar 3A - and unrestricted pension provision, also known as 3rd pillar 3B. It's the latter that we're going to talk about in more detail.

As its name suggests, free pension provision offers you a degree of flexibility and versatility, unlike linked pension provision. This applies above all to payments, which you can make at the frequency that suits you best. The amount to be paid into your retirement account is also up to you. The 3rd pillar 3B is in fact similar to a life insurance contract, since it enables you to carry out a variety of projects. In fact, you may need a free provident fund to save for your retirement, or to protect your loved ones from financial problems in the event of death, for example.

The 3rd pillar 3B is for everyone. You can subscribe to it in the same way if you live in Switzerland or in any other country, if you are employed or self-employed, and even if you are looking for a job. Insurance companies offer this type of free pension plan. One of the advantages of the 3rd pillar 3B is that the duration of the contract is in no way linked to the time of retirement, as is the case with the 3rd pillar 3A. This means you can continue to save as you wish, even after the age of 64 for women or 65 for men. In general, however, insurance companies set a minimum duration for pension contracts of 3 to 5 years.

As far as contributions are concerned, they are not subject to any legal ceiling, giving you greater freedom to save. With a 3rd pillar 3B, you can add your children to the insurance contract and define the role played by each person in the household (who is insured, who pays the premiums, etc.). What's more, you can withdraw your unrestricted pension capital whenever you like, without any particular reason. Finally, in the event of death, you should know that there is no specific law regarding the order of beneficiaries.

Free provident provision covers all your assets, whether real estate or valuables, and can also take different investment forms, the most common of which are:

If 3rd pillar 3A offers numerous tax advantages, this is no less the case with 3rd pillar 3B, even if taxation is somewhat different with this type of pension. In fact, not everyone is taxed the same, since this depends on the laws in force in each Swiss canton. Some of them do, however, allow partial deduction of contributions from taxable income.

Since this issue is dealt with at cantonal level, and not at federal level, it makes more sense to contact your local tax authorities directly. This will ensure that you make the right choice in terms of tax savings with a free pension contract rather than a tied pension plan. For the time being, only the cantons of Fribourg and Geneva allow you to deduct your 3rd pillar 3B contributions from your tax bill.

It's important to know that the surrender value of your 3rd pillar 3B is taxable for the entire duration of your savings, and needs to be declared to the tax authorities every year. The surrender value is subject to change every year and refers to the amount you could withdraw early from your free pension.

When you withdraw capital from your free 3rd pillar, you benefit from a tax exemption. Again, this is an important difference from the tied pension contract, since the latter involves taxation when you decide to withdraw your retirement savings. However, with the 3rd pillar 3B, there is one less obvious situation in terms of taxation: the death of the insured person. In this case, you need to take into account your place of residence and the type of insurance you have taken out. In the case of "pure risk" insurance, the capital sum is subject to tax, albeit at a reduced rate. In the case of "endowment" insurance, this means that the lump-sum death benefit is subject to inheritance tax.

Finally, if there is no question of death, a final tax liability nevertheless arises after the lump-sum death benefit has been paid out. You must declare the money recovered from your 3rd pillar 3B, which may be subject to wealth tax. If you opt for an annuity payment, it will be taxed in the same way as income.

There are many advantages to choosing a 3rd pillar 3B, not least of which is the freedom to manage the pace of your payments as you wish. Some elements may differ depending on the insurance company selected, so if you would like further advice on free pension provision, please contact us.