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The Third Pillar: It’s All on You

Unlike the so-called “first pillar” of social security in Switzerland, the other two parts of that comprehensive insurance scheme are supposed to ensure more than a subsistence level income for retirees. The InterNations guide explains how expats can also benefit from occupational and private pension plans.
Making a decision when it comes to finances is never easy — just weigh up the pros and cons to decide if you need that little bit extra.

Unlike the first and second pillar, the third pillar of the Swiss social security system is completely optional for all residents of Switzerland. Should the first two pillars be insufficient for retirees to enjoy a retirement free from financial worries, the third pillar can act as a kind of safety net and close the gaps.

The importance of having a private pension plan is quickly rising, so the federal government and the individual cantons are trying to further promote this option. They make it more appealing by offering residents significant tax advantages if they contribute to this type of private pension plan.

Limits and Imbalances: Third Pillar A

Anybody in Switzerland who earns income — no matter how much — can choose to contribute towards the first kind of “third pillar” pension plan through their bank or insurance company. There is a limit on how much you can contribute towards this scheme.

This kind of pension scheme is often referred to as a “tied pension”. This expression refers to a long-term retirement plan in which any investments you make will be locked in, usually until the standard retirement age.

People who do not contribute towards an occupational pension plan (the second pillar or BVG) — normally self-employed people — can pay a higher amount into this sort of pension fund than those who do.

As of 2016, the maximum amount that a person paying into an occupational pension scheme can contribute is 6,768 CHF per year. Those without a BVG scheme can contribute up to one fifth of their annual income, with the upper limit set at 33,840 CHF.

The contributions are normally deducted from your annual tax return at the end of every tax year, meaning you could save up to 2,000 CHF a year on tax. The government sponsors these contributions, so, in a roundabout way, you get reductions on your income tax rates for contributing to such a pension scheme.

To make it even more attractive for Swiss residents, the lump sum that is paid out when you reach retirement age will be taxed at a special reduced rate.

How to Contribute

There are two ways to pay into this type of pension scheme: through a private bank account, or through a life insurance policy. You have a lot more freedom when opening a bank account; however, the onus is on you to make the payments and reach your goal. With a life insurance policy, the payments will be scheduled and monitored by the insurance company.

The regulations vary between different banks and insurance companies; however, to remain a part of the scheme, you must make yearly contributions. For more information on the limitations of this scheme, it is best to enquire with your local bank or insurance company about their individual requirements.

Withdrawing Your Savings

The earliest stage at which you can withdraw your funds is five years before you reach the standard retirement age (currently 64 years for women, 65 years for men). However, there are some exceptions.

If you want to buy a property for yourself to live in, leave Switzerland permanently, or become self-employed, you are allowed to withdraw your savings. Just remember, whatever your reason, the bank or insurance company will ask you for proof.

If you are no longer able to work and receive a full disability (IV) pension, you are also entitled to request a payout of your savings.

The Limitless Third Pillar: 3B

This “third pillar” pension policy is available to everyone, whether you’re an employee, self-employed, or a cross-border commuter. With this policy, you can choose how you want to save and invest your money, when you want to do it, how much you want to save, and when you’d like to withdraw it.

There are no set tax benefits with this form of pension plan; however, some cantons will still offer attractive tax deductions.

An example of such a pension fund would be investing your money into the stock market. If you decide that this is the right option for you, make sure you understand how the system works. While this option can make you a very attractive profit, you also run the risk of losing all your money on an investment gone wrong.

 

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