What is Switzerland's 'third-pillar' pension and how can it benefit you?

Before we get to the third pillar, let’s look at the other two, since they are all part of the ‘whole package', which will give you the highest financial security after you retire at 65 (men) and 64 women (the latter to go up to 65 from 2025).

Before we get to the third pillar, let’s look at the other two, since they are all part of the ‘whole’ package, which will give you the highest financial security after you retire at 65 (men) and 64 women (the latter to go up to 65 from 2025).
 
Pillar 1
 
The first pillar — otherwise known as the Old Age and Survivor’s Insurance(AHV / AVS) — aims to cover the basic (though minimal) costs of life after retirement, 

This state scheme, which is mandatory, includes disability insurance and any supplementary benefits.

Every person aged 18 or over who is employed in Switzerland automatically pays into the AHV / AVS system, with contributions — 5.30 percent paid by you and equal amount by your employer — being directly deducted from pay.

The amounts paid out after retirement depend on how much you earned and how long you have paid into the system.

The minimum pension for an individual who has worked full time for 44 years is 1,225  francs and the maximum 2,450 francs. Married couples receive 150 percent of the maximum individual pension — that is, 3,585 francs at most. 

However, on March 3rd, Swiss voters will go to the polls to decide whether retirees should receive an additional monthly pension. If it it is accepted, they will have more disposalble income at the end of each year.

READ ALSO: How would retirees in Switzerland benefit from 13th pension payout?

Pillar 2

Like the first one, this pillar — known as BVG /LPP or ‘occupational’ pension is obligatory as well, but only for people who earn at least 22,050 francs a year,

You and your employer each pay half of the required amount, which is based both on your salary and your age.

From 25 to 34 years old, the contribution is 7 percent of your salary; 35 to 44, 10 percent; 45 to 54 years old,15 percent; and 55 to retirement,18 percent — each of these contributions spilt in half between you and your employer.

How much of the second pillar pension will you receive once you retire will depend on how much you (and your employer) contributed into the this fund throughout your working years. It will also be based on your last salary. 

As a general indication, the amount of first and second pillars usually makes up 60 to 70 percent of your last payslip.

READ ALSO: What is Switzerland’s 'second pillar' pension and how you will benefit from it?

Now let’s move to Pillar 3

Unlike the first two, this one is a voluntary contribution to your pension, whose aim is to ensure an additional income stream after you retire.

Basically, it is a type of a savings account which you can open with a bank or insurance company when you start working (oral  any time  after).

The third pillar consists of tied pension provision (Pillar 3a) and flexible pension provision (Pillar 3b). Contributions to 3a are tax-privileged and can be deducted from taxable income, up to a defined maximum.

This is how it works

For the 3a:

• There is a maximum amount that you can pay into your account each year. That amount in 2023 (and still valid today) is 7,056 francs a year. Self-employed persons without a second pillar can pay in 20 percent of their income, but no more than 35,280 francs a year.
• More advantageous interest rates than in a savings account
• The contributions you make are tax-deductible
• The withdrawal of Pillar 3a savings is subject to strict conditions
• When withdrawing Pillar 3a savings, you must pay a one-off tax based on  your income at the time of withdrawal

For the 3b:

• You can make unlimited annual contributions each year
•  You must declare your accumulated capital to the tax authorities each year
• The capital is generally taxed annually
• You can withdraw the capital at any time
• You are not subject to additional tax when you withdraw your savings