Pillar 3
What happens to your pillar 3a savings if you die?
What happens to your retirement savings in pillar 3a if you die before you retire? Learn about the law and the extent to which you can choose beneficiaries yourself.
Content:
Content:
- Spouses and registered partners inherit the 3a assets of the deceased partner in the event of death.
- You can partly determine the claims of other beneficiaries yourself.
- Cohabiting partners can name each other as beneficiaries even if they have been living together for fewer than five years.
- Inform your pension fund about whom you want to name as beneficiary and how.
- To the conclusion
If you leave behind retirement assets saved in pillar 3, you only have a limited say on who should inherit them. The order of beneficiaries allows you little flexibility – although you do have some. You are strongly advised to give this some thought during your lifetime.
Upon death, saving in your voluntary pension plan ends and the assets saved are distributed to the beneficiaries. The order of beneficiaries, which is stipulated by law, regulates who that is. Despite the widespread misconception that you can freely determine your beneficiaries in your will, you can only deviate from this standard regulation to a limited extent.
The law stipulates that the following surviving dependents are primarily entitled to all the benefits:
1. Spouse or registered partner
If there is no spouse or registered partner, the pension assets are divided equally between the persons in this second group:
2. direct descendants,
- natural persons who were substantially supported by the deceased person,
- or the person who has lived with the deceased person continuously for the last five years prior to death,
- or who is responsible for the maintenance of joint children.
If there are also no beneficiaries in the second group, the next beneficiaries in this order of priority will be selected:
3. Parents
4. Siblings
5. Other heirs, excluding the community
How to enforce your choice of beneficiaries in pillar 3a
How to enforce your choice of beneficiaries in pillar 3a
Your options to adjust this statutory hierarchy of beneficiaries are limited. If your spouse survives you, you cannot, for example, specify that someone else from the list of beneficiaries should receive the pension assets. The options that are available to you instead are stipulated in a federal ordinance:
- You can select one or more beneficiaries from the second group of persons (number 2) to precisely define their entitlements. If you divide your assets among several of the persons mentioned here, the sum of individual shares must add up to 100 percent.
- You can also change the order of the beneficiaries in the third group (numbers 3 to 5) and formulate their respective entitlements.
A pillar 3a credit balance cannot be paid out if there are no beneficiaries in the first, second or third group. It expires. A simple precaution against this is to name an institution as a beneficiary among the “other heirs” in the event of the worst-case scenario. In contrast to the other possible beneficiaries, in this case you can consider charitable organizations instead of individuals.
Plan your retirement at an early stage
When you think about your retirement, you are faced with some important decisions. Let’s draw up a plan together based on your personal wishes, so that nothing stands in the way of a relaxed financial future.
The challenges that arise with cohabitation
The challenges that arise with cohabitation
Unless they make their own arrangements, unmarried couples are at a disadvantage compared to married couples when it comes to retirement assets. If this is compounded by a lack of knowledge about beneficiary options, cohabiting partners are significantly less well protected in the event of death.
Worth knowing
You can notify the pension fund in writing that your partner is the beneficiary. If the cohabitation has been continuous for more than five years, and there is no preferred beneficiary (e.g., spouse), you can allocate your assets entirely to your partner.
If you act in good time, you can still obtain the beneficiary status of your partner even if you have not yet lived together for five years. The five-year period is checked at the time of the death of the insured person or account holder.
What has changed in pillar 3 after the reform of the inheritance law
What has changed in pillar 3 after the reform of the inheritance law
The inheritance law reform brought clarity: Since 2023, all 3a assets (bank and insurance) of deceased persons are not included in the estate, but beneficiaries have a separate claim in accordance with the order of beneficiaries. Banks or insurance companies pay out the assets to the intended beneficiaries without the heirs having to give their consent. Previously, this procedure applied only to accounts and funds at insurance companies, but not to accounts and funds held at banking foundations. Since 1 January 2023, all 3a assets are treated equally in the event of death. However, when calculating the compulsory portions, these assets are added to the base used to calculate the compulsory share.
On payout, the balance will, as before, be subject to the reduced rate of capital withdrawal tax.
Clear rules prevent inheritance disputes
Clear rules prevent inheritance disputes
It makes sense to use the flexibility available to you and clarify who is entitled to which benefits. If you don’t make your own arrangements regarding your death, either your retirement savings may end up going to beneficiaries you don’t want to benefit at all (such as your ex-spouse or ex-partner) or it may happen that people who are more important to you (such as your partner or cohabiting partner) are left empty-handed. Competing claims could also arise that you would rather avoid (e.g., child vs. partner)because this could lead to conflicts and legal disputes.
It is recommended that you compare the entitlements of heirs and beneficiaries, for example, as part of the transfer of assets.
You should notify the pension fund in writing of your individual beneficiary status or any changes to it. Register your cohabiting partner there. You can also name people whom you have given significant financial support to your provider during your lifetime. Many already have forms available for this purpose, which you can use to record clear instructions in the event of your death.
To avoid disputes, you should compare the entitlements of heirs and beneficiaries, for example, as part of the asset transfer. If retirement assets are large and the estate is small, legal heirs may want to receive their compulsory portions from the beneficiaries’ retirement assets. This is because pillar 3a assets, although not part of the estate, are part of the “base used to calculate the compulsory share.”
“Base used to calculate the compulsory share” at a glance
The base used to calculate the compulsory share is how the value of an entitlement is calculated, i.e., the children’s or spouse’s compulsory portion of the inheritance. The basis for this calculation is the sum total of the deceased’s inheritable assets at the time of death. To determine the net value, liabilities (i.e., debts) are deducted from assets. However, gifts and insurance claims that existed during the deceased’s lifetime are charged against the net estate value.
What steps to take when nominating beneficiaries
What steps to take when nominating beneficiaries
By taking these steps, you can nominate your individual beneficiaries in line with the legal requirements:
- Inform yourself: get an overview – preferably together with your partner – of what consequences the legal regulations or possible individual arrangements would have for you.
- Specify: decide whom you want to leave something to and how.
- Record in writing: obtain forms from your pension fund such as the “beneficiary declaration
” or write your own written declaration and a will. - Communicate: let your pension fund know your preferences.
- Verify: ensure that your order of beneficiaries complies with the law.
- Adjust: review your specified order of beneficiaries every time your circumstances change.
Even though the law leaves little flexibility for the passing on of restricted pension assets in the event of death, you are advised to make use of this flexibility. The need to take action in pillar 3a is obvious, especially for partners in cohabiting relationships, whose mutual legal protection is lower than that of married couples. Your pension fund will help you make the necessary arrangements so that the assets can be paid out quickly to your surviving dependents if the worst comes to the worst.
Disclaimer
Disclaimer
