How do I use my 3rd pillar?


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The 3rd pillar of the Swiss pension system, which includes the AHV and the pension fund, is the one that provides you with a comfortable retirement. Yet it has many other assets and seems useful in many circumstances. In this article, you'll find out how it works, what its main advantages are and what it's used for.

How the 3rd pillar works

The 3rd pillar can also be referred to as individual retirement provision. It involves making payments over several years, into an account opened with a bank or insurance company. These institutions put the money you've deposited to work for you, so that you can build up a pension capital to enhance your retirement.
The 3rd pillar can also be used for other life projects, such as buying a property, paying off a mortgage, financing your studies or even setting up your own business. What's more, the amount saved in your retirement savings account can also be used to invest in 3rd pillar investments and other retirement products available through banks and insurance companies. Depending on your objectives, your profile and the level of risk you wish to take, you will be offered the investments that suit you best.

The advantages of the 3rd pillar

Thanks to the 3rd pillar, you benefit from many advantages, in addition to that of obtaining a comfortable standard of living when you retire. It's true that individual pension provision is not compulsory in Switzerland, but it still allows you to supplement the 1st pillar - also known as AVS - as well as the 2nd pillar corresponding to occupational pension provision.
What's more, the 3rd pillar allows you to protect your loved ones from financial problems in the event of your death. In this case, the retirement capital will be paid to the beneficiaries specified in the contract. This depends on the type of individual pension plan chosen by the policyholder. With a 3rd pillar, you also have the option of protecting yourself in the event of disability or inability to work, if this option was taken out when the provident contract was taken out.
Finally, using a 3rd pillar means you benefit from tax advantages that are attractive to say the least:
  • contributions are deductible from your taxable income up to the amounts provided for by law
  • capital as well as interest are not subject to withholding tax;
  • a reduced tax rate is applied in the event of early withdrawal from your 3rd pillar or when the contract comes to an end.

Using your 3rd pillar according to the type of pension plan

There are two types of individual pension plan: 3rd pillar 3A or tied pension plan, and 3rd pillar 3B, also known as unrestricted pension plan. The use to which your pension is put depends on the type of contract you take out.

Linked 3rd pillar 3A

This is aimed at all those who are gainfully employed in Switzerland, whether they are salaried workers, cross-border commuters or self-employed. Payments into this 3rd pillar are capped at a maximum of CHF 7,056 per year, for those affiliated to a pension fund. The self-employed can contribute up to 20% of their net income, up to a maximum of CHF 35,280 per year.
To use your 3rd pillar, you need to wait until you reach the legal retirement age in Switzerland, i.e. 65 for men and 64 for women. However, if you wish to recover your capital before you retire, you can make an early withdrawal under certain conditions:
  • you're moving abroad and leaving Switzerland permanently;
  • you're planning to buy or build a property;
  • you want to pay off a mortgage;
  • you want to set up on your own or change self-employment ;
  • you would like to transfer your pension assets to another 3rd pillar;
  • you are receiving a disability pension;
  • you intend to buy back years of contributions in a 2nd pillar.

The free 3rd pillar 3B

This can be taken out by anyone working in Switzerland or abroad, as well as the unemployed. Unlike the 3rd pillar 3A, the free pension plan is not linked to retirement. That's why you can withdraw your capital whenever you like, for no particular reason. What's more, you can pay in as you wish, with no ceiling. It's therefore a much more flexible pension solution to use.
The main use of a 3rd pillar therefore concerns retirement. Thanks to your retirement capital, you'll be able to enjoy a standard of living similar to the one you enjoyed during your working years. However, as you've seen, the 3rd pillar can be very useful in many other cases. If you have a project in mind that requires expert advice, contact us!
Joffrey Maitre
Updated on: 31.01.2024Written by Joffrey MaitreHead of private provision department at Comparea
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