What exactly is the 3rd pillar?

 

What is the maximum amount people can deposit for 2019?

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The capital saved through the 1st and 2nd pillars of the pension system are usually not enough to maintain the standard of living you enjoyed during the time of employment for the time after retirement. That capital is expected to cover only about 60% of the last income that was subject to BVG. Therefore, it is worthwhile investing in a 3rd pillar early for building up additional pension assets. Simultaneously, it gives you the benefit of saving on taxes and additional advantages.

 

Pillars 3a and 3b

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The 3rd pillar complements the benefits of the first and second pillar. As with the private pension provision, the 3rd pillar helps to close any pension gaps to enjoy life after retirement as accustomed. This 3rd pillar can be differentiated in a tied pension (3a) and a flexible pension (3b) provision.

 

Tied pension provision (3a): As the term evidences the 3a portion is generally not spendable or accessible before  retirement - thus tied. On the other hand it offers you some tax related advantages. Only people with income subject to AHV can contribute and benefit from Pillar 3a.

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Flexible pension provision (3b): The Pillar 3b, on the other hand, comprises the flexible portion of the private pension provision as part of wealth creation and risk coverage. These might include savings on conventional savings accounts, investments in securities, or life insurances. This capital can generally not be deducted from taxable income.

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Tax Savings

 

In saving for retirement with a 3a pillar you will benefit from the following tax advantages.

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• The savings on a respective deposit can - up to the legal defined maximum - be annually completely deducted from your taxable income

• You do not have to pay any wealth, income, or withholding tax throughout the entire term of the savings plan

• At the time of cash-out, this capital is taxed at a reduced rate and separately from the rest of your income.

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The annual maximum contribution of the 3a pillar deductible from taxes for the year 2019 was set at 6'628 CHF

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Withdrawal Options

 

Although the pension capital of the 3a pillar is meant to be for the period after retirement, the capital can be withdrawn in advance when certain conditions are met:

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• If you buy residential property for your own use

• If you are repaying a mortgage on owner-occupied residential property

• If you become self-employed

• If you change industry while self-employed

• If you permanently leave Switzerland (emigration)

• If you purchase additional benefits in a pension fund

• If you receive a full disability pension