Swiss 3rd pillar system 

Background

The 3rd pillar, known as troisième pilier, was created in Switzerland after it became clear that people of retirement age were suffering a significant shortfall in their pension. In addition, Swiss authorities were also aware of the large tax burden that is present; especially for those with families thus creating a solution that provided both immediate tax relief and the chance to save at a good growth rate within an ‘insurance’ structure.

Most people working/living in Switzerland take advantage of the 3rd pillar as indeed it is a ‘no brainer’ decision. It’s a very efficient and well thought out option especially in the ‘insurance’ format and when combined with the 1st and 2nd pillars, in fact it is arguably one of the strongest pension systems on a global level.

What is a 3ème Pilier Pension?

To answer the question of what a swiss third pillar pension, or troisième pilier suisse, is let’s look at what pensions are in general. Governments encourage the use of savings which are specifically earmarked for retirement by offering tax rebates or subsidies. Pensions can then usually be broken down into three categories: state backed, employer backed, and private pensions. In Switzerland this is known as premier pilier (1st pillar), duexieme pilier (2nd pillar), and troisieme pilier (third pillar) respectively.

The 3émé pilier pension is simply a privately held pension in Switzerland.

What are the Third Pillar Pension benefits?

One of the main advantages is that every year 3rd pillar pension contributions can be offset against your income so that you are entitled to a refund on your tax bill. This typically is in the region of 22% – 27% of your investment
Various forms of protection, including life insurance, disability cover, and income protection, are available to bolt on to your third pillar pension. It is possible to get these added at a discounted rate
Depending on the product selected it is possible to secure a minimum rate of return on your investment or protect the initial investment
It is entirely up to you what level of risk you wish to take. For those preferring to forego guaranteed protection there is a wide selection of investment based options which potentially could yield far superior returns
There are two main forms of ‘investment’ options available: bank third pillar pensions and insurance troisième pilier schemes. The former is equivalent to a bank account. It pays interest on an regular basis and does not go down in value thereby guaranteeing a set rate of return. Insurance third pillar schemes, by contrast, do not guarantee the return that you will receive and your initial capital invested may, but not always, be at risk. You may therefore get back less than you contribute though this usually only happens when contributions are paid in for a short period of time. The benefit of selecting an insurance plan is that the expected returns are far superior compared to those offered by an equivalent bank product
Unlike a lot of pensions, any money tied up in a 3rd pillar pension can be accessed if you either decide to start your own business or purchase a house (this also applies to your 2nd pillar pension). In addition, should you leave Switzerland it is possible to withdraw your pension in cash
Should you either leave Switzerland or are made unemployed you can continue contributing should you so desire
Unlike most pension schemes, including Switzerland’s own 2nd pillar scheme, any standard income withdrawal from a 3a pension, see below, benefits from an 80% deduction upon your normal income tax rate. This makes it incredibly tax efficient

Pension options – 3a or 3b

There are 2 main categories available: 3a and 3b. The former can be offset against your income tax immediately. As can be expected income is taxed eventually but in this case it will be at a far lower rate than would have otherwise been applicable. 3b pension, alternatively, are contributed from you net salary with no further tax being due when any funds are withdrawn.

3a third pillar pensions are thus the more tax efficient option. They are, however, limited in the amount that can be contributed on an annual basis. For 2016 the maximum standard rate is CHF 6,768 if you are employed against the lower of CHF 33,840 or 20% of annual earned income for anyone who is self employed. The discrepancy can be viewed as compensation for self employed persons not having access to an occupational pension scheme (2nd pillar or 2émé Pillier). In addition, an employee can also have a 3b pension subject to set limits. Currently this is CHF 2,200 plus an additional CHF 900 if you are married and CHF 900 per child in the canton of Geneva for example. These contributions are tax free unlike normal 3b contributions.
 

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Swiss Third Pillar Pensions Guide written by Liberty Wealth average rating 3.2/5 - 6 user ratings