Why is there a restricted pension plan (3a)?
Since 1972, retirement provision in Switzerland has been based on three pillars: public, occupational and private retirement provision. The basic principle is to ensure a reliable income – in the event of the death of a partner, permanent disability due to illness or accident or after retirement. The first pillar (OASI) and the second pillar (occupational retirement provision) cover around 60 percent of the previous income (see chart).
Since usual standards of living often cannot be maintained, the Swiss pension system is supplemented by the third pillar.
Tax benefits for restricted pension plans (3a)
Each individual is responsible him or herself for their benefits from pillar 3. That means you have to save privately for your old age so that you can fulfill your dreams even after you retire. This can be achieved in restricted (pillar 3a) and unrestricted (pillar 3b) pension plans, whereby the tax effect for the restricted pension plan is normally much greater than for the unrestricted pension plan.
Payments in pillar 3a can be deducted up to a maximum of the taxable income. At the same time, the money from the 3a pot is taxed at a more favorable rate when paid out.
If you save in pillar 3a, you can take advantage of tax benefits
The amounts that can be paid into the restricted pension plan are limited by law.
- for working persons with occupational retirement provision of CHF?6,768 (2018) and CHF 6,826 (2019)
- for working/self-employed persons without an occupational retirement provision 20%
of net employment income, maximum CHF 33,840 and 34,128 (2019)
The 3a funds saved are tied-in until the OASI retirement age and may only be accessed prematurely in certain circumstances. For example, if you start your own business. Or if you purchase residential property. Otherwise, you have no access to the money until at least five years before you reach the normal OASI age of retirement.
Cases in which you can dissolve your 3a account ahead of time:
- five years before reaching the normal OASI retirement age
- acquisition of residential property for your personal use
- commencement of self-employment
- permanently leaving Switzerland (emigration)
- acquiring a full invalidity insurance pension.
Saving options for restricted pension plans
In pillar 3a, you can either save through your bank – for instance with a 3a account – or with investment funds. Or you can select an insurance product – for instance savings insurance with premium waiver. Of course, insurance solutions can also be combined with bank solutions. Many people opt for bank savings, hoping that they will offer more flexibility.
But modern insurance products are flexible as well – and offer a substantial benefit: if the insured becomes disabled as a result of an accident or illness, the insurance company will continue to pay savings premiums during this time. The savings goal will be achieved either way.
Saving at your own discretion
Pillar 3b represents the unrestricted pension plans – you save at your own discretion, often with bank accounts, life insurance policies, asset investments or residential property. The saver is not restricted by statutory requirements or by a certain period of time.
Unrestricted pension plans can be paid out at any time – unless contractual agreements stating otherwise have been concluded with the bank or insurance company. Incidentally, a savings account with an insurer may be a compelling proposition from a tax perspective under certain circumstances. Get advice on this topic from an insurance expert. Because the bottom line is: if you save well, you’ll earn more.