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Pillar 3a, tax saving pension plan

As a reputable insurance broker, our mission is to guide you in navigating the complex landscape of pension planning, ensuring you find the most advantageous pillar 3a plan tailored to your specific needs.

In this article, we'll provide a comprehensive overview of the pillar 3a, an essential component of Switzerland's pension system, to empower you with the information you need for your retirement planning journey.

What is a private pension plan?

A private pension plan is an arrangement where individuals contribute a portion of their income towards a fund to provide them with income upon retirement. This form of pension scheme is voluntary and complements the state and occupational pensions, offering additional financial security in the later stages of life. In Switzerland, the private pension plan is known as the third pillar (pillar 3a) of the Swiss pension system, with the first two pillars being the state pension (pillar 1) and the occupational pension (pillar 2).

Who can benefit from the pillar 3a pension plan?

The third pillar pension plan, or pillar 3a, is available to anyone who is gainfully employed in Switzerland. This includes self-employed individuals, part-time employees, and even those working from home. It's particularly beneficial for those who want to ensure they have a comfortable financial cushion in retirement, or for those who might have gaps in their first and second pillar contributions.

What is the annual payment amount of the pillar 3a?

The annual payment into the pillar 3a varies and is subject to an upper limit. Individuals with a pension fund can contribute up to CHF 7'056 per year (in 2023), and self-employed individuals without a pension fund could contribute 20% of their net income, up to a maximum of CHF 35'280 (in 2023). 

What are the tax benefits of pillar 3a?

The pillar 3a pension scheme offers substantial tax benefits. Contributions made to the pillar 3a pension are fully tax-deductible up to the maximum allowable limit. This means you can reduce your taxable income each year by the amount you contribute to the pillar 3a. Furthermore, the wealth accumulated in the pillar 3a is exempt from wealth tax, the earnings within the pillar 3a are tax-free, and the pillar 3a is also not subject to inheritance tax in case of death.

For example, if you reside in Zurich and have a taxable income of CHF 160,000, making a full contribution of CHF 7,056 to Pillar 3a could potentially result in tax savings of up to CHF 2,220. In Zug and Schwyz, this tax reduction could be around CHF 1,990, whereas in St. Gallen it could be around CHF 2,500.

What types of insurance coverage are included in pillar 3a?

Pillar 3a pension schemes often come with additional insurance coverage. It's possible to include risk insurances such as death and disability insurance within your pillar 3a. This makes pillar 3a not only a retirement savings plan but also a comprehensive personal protection plan.

What is the potential return on interest with pillar 3a?

The return on investment with the Pillar 3a varies based on the chosen strategy. A traditional account offers a fixed interest rate, while a 3a linked to investment funds may yield higher returns, though with associated risks. Balancing your contributions between the two can help optimize returns, aligning with your risk tolerance and retirement goals. We offer several products within our range that have, on average, yielded up to 8% interest over the past 10 years.

When can you withdraw money from the pillar 3a?

You can typically withdraw funds from the pillar 3a five years before reaching the official Swiss retirement age. Early withdrawals are permitted under specific circumstances:

  • 1) purchasing a home
    2) starting an independent business
    3) leaving Switzerland permanently
    4) if you become permanently unable to work

The specifics of the pillar 3a pension plan can be quite complex and may change over time. It's important to consult with a professional to fully understand the advantages and potential drawbacks based on your personal circumstances. As an experienced insurance broker, we are dedicated to providing you with personalized advice and support. 

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