The Swiss private pension system offers two distinct options:
- 3rd pillar A (or linked 3rd pillar) open to employees and self-employed persons:
Payments are deductible from taxable income up to a maximum. It is a form of tied pension provision, which means that the assets are only available under certain conditions.
- 3rd Pillar B (or free 3rd pillar) open to all :
Payments are not capped, but Pillar 3b has fewer tax advantages than Pillar A
3rd pillar A
Any person in gainful employment may deposit money on a 3rd pillar A opened with a bank or insurance, up to an annual ceiling. The amount paid is deductible from taxable income. However, a distinction is made between two categories of persons :
- persons who are already members of a pension fund, generally employees
- persons who are not members of any pension fund, usually self-employed persons, who are allowed to make higher payments.
The Federal Social Insurance Office sets the maximum authorised payments each year. The deductible amounts for 2017 are :
- CHF 6,768.00 for workers who are members of a pension fund (employees)
- 20% of the annual income, but no more than CHF 33,840 for workers who are not affiliated to such a fund (self-employed persons)
The 3rd pillar A capital is not subject to wealth tax, and the income generated by it is exempt from income tax and withholding tax.
Forms of 3rd pillar A :
It is an account comparable to a savings account but subject to the 3rd pillar regulations.
It allows you to deduct the amount paid into the account each year from your taxable income, but does not provide additional coverage.
Assets may be left in the account and will then be increased by the payment of annual interest or may be invested in mutual fund units in order to seek a higher return (the capital is not guaranteed in this case).
This solution is particularly attractive for a single person who is not yet the owner of a real estate property. Indeed, the banking solution’s great flexibility is an asset to build up equity for a real estate acquisition.
Lack of protection in the event of death is less problematic than for a person who already owns a mortgage and benefits from a mortgage.
On the other hand, this solution is less attractive for a married person or someone who already owns a property, the lack of coverage in case of death or disability could be a major problem if an unhappiness should occur (no protection for survivors)
Life insurance :
This is a life insurance policy subject to the 3rd pillar regulations.
The premium paid each year is deductible from your taxable income.
Unlike the 3rd banking pillar, life insurance offers additional benefits, namely :
1. Minimum guaranteed capital at maturity
2. Guaranteed capital in the event of the policyholder’s death before maturity
3. Freeing up the payment of premiums in case of incapacity (the premium is paid by the insurance company on your behalf if you become incapacitated after a certain waiting period)
4. Disability pension payment (option according to some insurance companies)
5. Compensation for possible gaps in pension provision following the use of your 2nd pillar at the time of the purchase of your property
Like the 3rd banking pillar, it is possible to invest the premium amount in units of investment funds in an attempt to maximize return at maturity. Some insurance companies offer contracts with an investment in mutual funds while retaining a capital guarantee at maturity.
In the case of conventional life insurance, the insurance return is represented by the technical rate and the excess dividend.
The 3rd pillar solution in the form of life insurance is particularly advantageous for a married person and owner because it allows to cover the family in case of death or disability.
Important notes on Pillar A (banking and life insurance) :
An early withdrawal of Pillar 3a assets is only possible for the purpose of acquiring or building a home for one’s own use, for the purpose of paying off a mortgage on a principal residence, in order to become self-employed, in the event of a permanent departure from Switzerland or a change in self-employment.
Withdrawals from the 3rd pillar are taxed at a much lower tax rate and separated from the rest of the income. The beneficiary must pay a flat-rate tax depending on the canton, the amount of the withdrawal and the beneficiary’s marital status.
3rd pillar B :
This is a so-called “free” life insurance policy for which payments are not capped.
On the other hand, it offers fewer tax advantages than Pillar 3A (tax possibilities depend on the canton, the policyholder’s marital status and are cumulated with other capped tax deductions)
Advantages of the 3rd Pillar B :
1.Deductible from taxable income under certain conditions
2.Supplement in the event that the entire amount of indirect depreciation cannot be achieved via a third pillar A
3.Additional protections in addition to 3rd Pillar A (death, disability)
Do not hesitate to contact our specialists for further information on aspects of pension planning and optimisation methods.