Pillar 3
Private pensions: choosing the right strategy
A carefree retirement is only possible with a private pension plan. Find out what specific action you can take to secure your financial future.
Content:
Content:
- Future retirees will receive less pension. That’s why private retirement savings are more and more important.
- Pension gaps negatively impact income after retirement. But by identifying and closing them, you can enjoy your retirement.
- With the right strategy, both young and old can save for retirement privately.
- If you save privately for retirement, you save on taxes.
- To the conclusion
Everyone wants a carefree retirement. However, you should not rely solely on the state pension and occupational pension. As in many other countries, demographic change is also making itself felt in Switzerland. Higher life expectancy and a falling birth rate have led to an aging population, which poses major challenges for the pension system. A private pension plan will generate additional income and avoid financial bottlenecks in old age.
The Swiss pension system is under pressure: Pensions must be paid out for longer and a person’s private retirement savings must also last longer due to higher life expectancy. The development of interest rates also has a negative effect on retirement capital. In addition, fewer and fewer people in employment have to pay for more and more pensioners in the OASI.
Future retirees will have to accept a lower pension. This makes it all the more important to make private savings in order to ensure financial flexibility in old age. Around 60 percent of employees regularly pay into pillar 3.
The Swiss pension system is based on three pillars. The state old-age, survivors’ and disability insurance (OASI) is the first pillar and ensures a minimum income in old age. In principle, all those living or working in Switzerland are insured. In the case of employees, the contributions are deducted directly from their wages. Those not in gainful employment pay a minimum annual contribution.
Pillar 2, also known as the pension fund, is based on the Occupational Pensions Act (BVG). It complements the benefits of pillar 1. Employees with an annual salary subject to OASI contributions of more than CHF 22,050 (as of 2024) are compulsorily insured in a pension fund.
In pillar 3, you can voluntarily make private provisions to close income gaps in old age. Why is this important? Voluntary private pension provision helps you maintain your accustomed standard of living after retirement, as the benefits from pillars 1 and 2 are usually not sufficient for this. Even those who have paid into the OASI throughout their career and have always been insured in a pension fund through their employer can only expect to receive around 60 percent of their final salary after retirement. Pillar 3 is therefore indispensable as a way of supplementing the OASI and pension fund benefits.
In pillar 3, a distinction is made between restricted pension provision (pillar 3a), for which there is tax relief from the state, and unrestricted pension provision (pillar 3b), which is not encouraged by the state.
A pension gap exists if the benefits from the OASI and pension fund are not sufficient to continue your usual lifestyle in old age. If you want to enjoy a carefree retirement, you should identify gaps in your pension provision at an early stage.
Common causes of pension or contribution gaps can be:
- Part-time work: If you work part-time, you pay less into the pension fund and receive less pension after retirement. The OASI pension is also usually lower than with full-time employment due to the lower average income.
- Missing contribution years: In phases of life in which you do not receive a salary, you usually do not pay any contributions to the OASI or the pension fund. The reason may be a period spent living abroad or a sabbatical. Or it could be years in which you studied or took care of children and did not make OASI contributions.
- A new employer: A change of job usually also results in a change of pension fund. Further gaps may arise if the pension benefits of the new pension fund are less generous.
- Early retirement: If you take early retirement, you pay in for a shorter time and must reckon with a reduced annual pension.
- High income: It may sound paradoxical, but the higher your gross income, the lower the amount that’s covered by pillars 1 and 2.
- Divorce: A divorce can also reduce your income in old age. In all three pillars, there is an equalization of pension provision for the duration of the marriage. In particular, if one of the spouses has not worked or has only worked part-time, this can lead to pension gaps.
How much money can I save in pillar 3a over the years?
It pays to save for retirement – even smaller amounts. And the earlier you start with pillar 3a, the more comfortable your retirement. Calculate here how much you can save over a period of years.
In general, the following applies: The earlier you start saving privately for retirement, the less money you have to put aside each year. Review your financial situation at least ten years before retirement – preferably even earlier. Even between the ages of 50 and 55, there’s still enough time to optimize your pension provision. Here’s what you can do:
Worth knowing
While pillar 3a accounts must be closed at the latest upon retirement, investment funds can be continued and transferred to a custody account. This gives you greater security in the event of market fluctuations, as you are not tied to a particular time for the sale.
It’s worth paying into pillar 3a throughout your working life. Not only can you deduct your contributions from your taxable income each year but your pension assets are exempt from wealth tax until they are paid out. The amount that can be deposited is limited by law and is redetermined each year.
Tax advantages also result from voluntary contributions to the pension fund. As with payments into pillar 3a, the amount can be deducted from your taxable income. It’s also interesting to note that your balance does not have to be taxed as assets and that the interest on the balance is not part of taxable income. For larger amounts, it’s generally advisable to spread the payments over several years, as this will increase your tax savings. And as mentioned, the three-year blocking period after purchases must be taken into account.
How much tax is due on withdrawals from pillar 3a?
When your pillar 3a savings are paid out, they will be taxed separately from your income at a reduced rate. Find out how much tax you need to pay.
Worth knowing
Important: although the money in pillar 3a is restricted, it is available to you if you want to become self-employed, emigrate or buy a home.
Private pension provision is an important component of a financial strategy for retirement. The earlier you start building up your assets, the better you can plan: When do you ideally want to retire? How much can you or do you want to save? How should you save? Depending on your individual options, supplementing the state-subsidized pillar 3a with the unrestricted pension provision in pillar 3b is a sensible solution to avoid income gaps after retirement.
Disclaimer
Disclaimer
