3rd Pillar Pension in Switzerland

How long do you expect to live after you've finished your working life? In Switzerland, you will likely retire when you reach 65 years old if you're a man and 64 if you're a woman. Life expectancy after the age of retirement is around 20 years in Switzerland. Are you prepared to sustain your quality of life for 20+ years?

In Switzerland, the retirement provision is based on three pillars: 

 

1st Pillar

2nd Pillar

3rd Pillar

Responsibility

State

Employer

Private

Legal designation

AHV and IV

BVG

3a, 3b

Purpose

Safeguarding basic income

Continuation of the living standard

Complementary

Obligation

Compulsory for all

Compulsory for employees; voluntary for self-employed people

Voluntary

 

The truth is, nobody can live on the 1st pillar alone and a big question mark must be placed behind the security of the 2nd pillar, because interest rates nowadays are very low. So, it is a wise decision to top up your retirement provision with the complementary 3rd pillar pension. Anyone starting to pay into the 3rd pillar at the age of 30 will have saved around CHF 300,000 by the time they retire. This can make a huge difference for those who only have pension fund assets (2nd pillar) of only CHF 500,000.

Most importantly, the 3rd pillar pension is an opportunity to save on income taxes: You may deduct the amount you pay into the 3rd pillar from your taxable income. For example:

• If someone with a taxable income of CHF 80,000 is paying into the 3rd pillar, he may save taxes up to around CHF 1,700.
• For those with a taxable income of CHF 100,000, the tax saving effect of the 3rd pillar is even higher: estimated tax reduction is around CHF 1,800.

 

Prerequisites

Only people who earn an income - either as employee or as self-employed - are allowed to pay into a 3rd pillar. People who do not earn their own money are not allowed to deposit money into a 3rd pillar account. 

Ceilings

The government specifies the maximum amount that may be paid into the 3rd pillar per year. For 2018, the maximums are:

a)    For employees: CHF 6’786

b)    For self-employed people:
• If they don’t pay into a 2nd pillar: 33'840 or max. 20% of the net income
• If they pay into a 2nd pillar: same as for employees

Choosing the best 3rd pillar product

Both banks and insurance companies are offering 3rd pillar products. The most common products are saving accounts, fund saving accounts and mixed life insurances. Some of the mentioned products allow you to determine the amount of the deposit (up to the legal maximum) yourself. It is important to speak to a financial adviser, who will help you select the best 3rd pillar tailored to your specific needs.

Withdrawal

3rd pillar deposits may be withdrawn at earliest 5 years before reaching the retirement age, i.e. when reaching 60 years (men) or 59 years (women), respectively.

In some cases, you may withdraw the money from your 3rd pillar account irrespective of the legal minimum age, for example when investing in your own home or when leaving Switzerland.

Start early to get a higher return on investment

All financial experts recommend to start saving into a 3rd pillar pension as early as possible. Due to the combined effects of compound interest returns and tax savings, you will get a higher payback for the same deposit amounts than those who start saving later on.

Your next step

For most, contributing into a 3rd pillar pension is a great way to make provision for your retirement. There are many providers and each product varies, so we're here to help select the best 3rd pillar for your needs and goals.  

Contact your local branch

0227994100

Speak to a financial adviser in Switzerland