Why did the Pillar 3a in Switzerland became so popular?

Why so many 20-40 year olds use the pillar 3a to invest and save taxes

A young person can no longer hope for a pension in 30-40 years’ time.

The AHV has already been under severe pressure for several decades and will no longer be able to pay pensions to pensioners.

The situation is no better for pension funds: BVG revisions, falling conversion rates and low returns are exacerbating the problem.

The Swiss government is aware of this and is therefore promoting pension provision with pillar 3a.

You can also save up to CHF 2’500 a year in taxes.

With the right strategy, it is even possible to retire a few years earlier.

What you should know about the pillar 3a:

Employed: max. CHF 7’056/year
Self-employed: max. CHF 35’280/year (max. 20% of net income)

The tax savings depend on the amount of your income and your municipality of residence.

In cantons with high tax rates, the tax savings are considerably higher, especially if your income is high.

Here are a few examples:

A net salary of CHF 100’000 after all deductions was used for the examples. Pillar 3a of CHF 7’056/year.

  • 6004 Lucerne: CHF 1’622 savings
  • 8003 Zurich: CHF 1’857 savings
  • 4000 Basel: CHF 1’960 savings
  • 3000 Berne: CHF 2’284 savings
  • 1000 Lausanne: CHF 2’458 savings

If you would like to know how much tax you would save with pillar 3a in your canton of residence, get in touch with us.

You can have your pillar 3a paid out in the following cases:

  • Retirement
  • Early retirement (up to 5 years in advance)
  • Emigration from Switzerland
  • Becoming self-employed
  • If you receive a full disability pension
  • Purchase of residential property for own use
  • Repayment of the mortgage

Yes, capital payment tax is due upon payout.

This is significantly lower than the normal income tax rate (usually 1/5 of it) and the capital is taxed separately from other income.

No, the capital in your pillar 3a does not count as part of your assets during the term and does not have to be declared in your tax return.

The capital therefore grows free of wealth tax and no capital gains tax is levied on it.

Yes of course, this happens automatically.

There is a statutory order of succession for beneficiaries:

1. wife/husband (compulsory)
2. children (compulsory)
3. parents
4. siblings
5. other heirs

From position 3 on, you can determine the order of succession yourself.

Those who start later get punished
Let's take a look at the following interesting example:

Maria and Jonas both put CHF 300 a month into their 3rd pillar.
  • Maria starts pillar 3a at the age of 35
  • Jonas starts pillar 3a at the age of 25

(Let's assume a modest interest rate of only 5% per year).
Result Maria:
Maria's capital at the age of 65 is as follows:
  • Duration: 30 years
  • Paid in: CHF 108'000
  • Interest: CHF 137'657
  • Capital: CHF 245'657
That's not too bad!
Result Jonas:
Jonas' capital at the age of 65 is as follows:
  • Duration: 40 years
  • Paid in: CHF 144'000
  • Interest: CHF 302'657
  • Capital: CHF 446'657
As Jonas started saving earlier, his retirement capital is a whopping CHF 200,000 higher and he could have retired 3-4 years earlier easily.
What if Maria had started with CHF 500?
Since Maria earns well, she can start with CHF 500/month to make up for the 10 years she missed.

How would this affect her final capital?
Result Maria (with CHF 500/month):
Maria's capital at the age of 65 is now as follows:
  • Duration: 30 years
  • Paid in: CHF 180'000
  • Interest: CHF 229'429
  • Capital: CHF 409'429
Although Maria paid CHF 200 more per month than Jonas, she never caught up with him. She still lacks almost CHF 40'000!
Conclusion
The best time is now!

Rather start small now than trying to catch up later with large amounts.​

If you don't know how and where to start, feel free to contact us, we will be happy to help.
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Compound interest calculator

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5 questions I should ask myself before I start with a pillar 3a

Is it really an advantage that I only pay in when I feel like it?

The bank will contact you when you have saved enough to sell you their product. And it is actually better to save in the Bank-3a than in the savings account, as there is (almost) no interest there. The banker promises flexibility – you pay in when you want.

This works well at first, but 3rd pillar contributions quickly fade into the background because you spend the money elsewhere or get your priorities wrong. As a result, you often don’t save enough and often have to live on CHF 2’000/month or less when you retire.

Fun fact: Pillar 3a deposits at the bank only last 2.5 years on average!

Therefore ask yourself:

Is it really an advantage that I only pay in when I feel like it?

What is the difference towards the pillar 3a with an insurance provider?

The 3rd pillar at insurance used to be very inflexible and has therefore fallen into disrepute among older people.

Fifteen years ago, contracts were severely restricted and it was often not possible to invest in stocks, or only in a non-transparent way. This made it quite unattractive for young people.

However, this inflexibility was eliminated a long time ago and nowadays insurance 3a’s often offer an even greater selection of funds and better performance than bank products.

Many providers also allow you to pause payments if, for example, you go traveling for a few months.

Important: As the administration costs are deducted at the beginning with insurance providers, the insurance 3a only performs worse in the first 2 years, but is better in the longer term.

However, if you are considering canceling your pillar 3a after only 2 years, you shouldn’t start a pillar 3a in the first place, as the bank also charges costs.

What risks can I protecty myself from?

Who will continue to pay your monthly premiums if you are no longer able to do so due to disability?

The bank?

No. Only the insurance provider can.

The so-called premium exemption is always included and ensures that the insurance company takes over your premiums if you can no longer do so.

This way, the savings goal is achieved no matter what!

Whether it is due to an accident or illness, it can affect anyone. If you are disabled, you are usually dependent on the IV and your income is severely restricted.

As an option, the insurance company will pay you a supplementary pension to the disability pension.

At the start of the contract, the amount of this pension can be determined optionally. This is usually between CHF 1’000 and 2’000 per month.

The risk of death must be covered, especially if you have a family with children.

This is because the gap is enormous if one parent or the main earner no longer exists.

It also makes sense to cover this risk if an indirect amortization of the mortgage through the 3rd pillar is active, because this way the property does not have to be sold in case of death.

By the way, the indirect amortization of a mortgage through the 3rd pillar is the smartest way to finance your mortgage.

Advantages of indirect amortization for your own home

Are you considering buying a house or apartment, but don’t know exactly how to go about financing it?

Contact us – our experts will be happy to help you.

These 2 privileges only exist within the pillar 3a:

Inheritance privilege
If a testator passes away, their descendants inherit their assets and debts.

If the deceased's debts are higher than his assets, the heirs must disclaim the inheritance so that they do not have to bear the debt.

The capital in the 3rd pillar is paid out to heirs, even if you disclaim the inheritance due to the deceased's excessive debt!
Bankruptcy privilege
If a person files for bankruptcy, everything they have is pledged so that they can pay off their debts as best they can.

Everything can be pledged except their capital in the 3rd pillar.

The capital you have in the 3rd pillar cannot be taken away from you and is protected against pledging.
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In short:
The 7 benefits of the pillar 3a

Our goal: Enable everyone to retire 5 years earlier!

As the #1 digital tax platform in Switzerland, we are constantly developing strategies to create tax advantages for our 2’000+ clients

Our experts have been providing investment as well as retirement advice since 2010 and have helped over 1’500 clients with their savings and pension planning.

Our close cooperation with the largest 3a providers gives you access to the best investment funds in Switzerland.

Your greatest advantage is our expertise in global equity markets and funds. We know the total expense ratios (TER) and alpha returns of all funds in Switzerland.

How much is in it for you?

Request your consultation now (in person or as an online call) and find out how much you are overpaying in taxes each year.