As the name suggests, the third pillar is one of three parts of the state-regulated pension system in Switzerland. The first two pillars are essentially mandatory for all employees. The first pillar is the AHV (Old Age and Survivors’ Insurance) and the second pillar is the pension fund. As an employee, you have little control over these. The third pillar, on the other hand, is optional and can be managed by the employee themselves. The employer has no involvement. The amount paid can be freely chosen up to an annual limit.

Pillar 3a vs 3b

The third pillar is private retirement provision. It consists of two parts:

• Pillar 3a: Limited access, tax advantageous
• Pillar 3b: Unlimited access and no tax advantages

In this article, we will only focus on Pillar 3a. All other savings methods, such as stock accounts or savings accounts, can be considered Pillar 3b. They can be accessed at any time.

What is the maximum amount for Pillar 3a in 2024?

For employees, the maximum amount in 2024 is 7,056 francs. An employee is considered to be part of a pension fund. Self-employed individuals generally do not belong to a pension fund. In this case, the maximum amount is 20% of the net annual salary, with a maximum of 35,280 francs. Therefore, anyone earning more than 176,400 francs net cannot contribute more than 35,280 francs.

What is the maximum amount for Pillar 3a in 2025?

For the year 2025, the maximum amount has been raised. For employees, the maximum amount is now 7,258 francs. For self-employed individuals, the maximum amount is 20% of the net annual salary, with a maximum of 36,288 francs. Thus, anyone earning more than 181,440 francs net cannot contribute more than 36,288 francs.

When must one contribute to Pillar 3a?

One can contribute to Pillar 3a throughout the year. It does not have to be a monthly payment. Thus, one can also make a larger contribution just once a year. It is important that the annual maximum amount is not exceeded. All payments must be credited to the pension account by December 31 at the latest; otherwise, they will count only for the following year.

When can you access Pillar 3a?

Pillar 3a can be accessed under certain conditions, including:

• Reaching the retirement age
• Financing owner-occupied property
• Transitioning to self-employment
• Repaying a mortgage
• Moving abroad
• Disability or death

It is important to know that the money in Pillar 3a is not available at all times and can only be accessed under these specific circumstances.

Who can contribute to Pillar 3a?

You must be at least 18 years old and have income subject to AHV (Old Age and Survivors’ Insurance). The minimum income is 2,300 francs per year. Thus, practically all adults with income can contribute to Pillar 3a, including apprentices. However, students who only receive support from their parents or scholarships cannot contribute to Pillar 3a, as they do not have earned income. Pensioners may contribute to Pillar 3a for a maximum of five years beyond the standard retirement age.

Pillar 3a bank account

A Pillar 3a bank account is essentially a special savings account designed for retirement provision. It is the simplest and safest form of the third pillar, as it carries minimal risks. However, the returns on these accounts are very low. Over the past ten years, the average return has been about 0.5%. This means that one can hardly benefit from the compounding effect over a long investment horizon for retirement savings.

Pillar 3a insurance

Combined third pillars with insurance are by far the worst products. They are not recommended under any circumstances. At first glance, they may appear attractive but come with various disadvantages. Additionally, there are almost always hidden fees, and you commit for a long time, losing any flexibility.

Pillar 3a investments

Now we come to the last and by far the best option: Pillar 3a investments. Here, your money is invested in stocks and bonds. However, you cannot manage your investments entirely by yourself like you would with a regular portfolio; you must choose a specific fund in which your money is invested.

There are both active and passive funds. Traditional banks primarily offer active funds as part of their Pillar 3a products because they are more profitable for the bank. In this case, your investment is actively managed by bankers, which means the fund fees are also higher. The alternative is passive funds. They are not actively managed, which allows them to offer lower fees and often better returns. In the following sections, we will look at three different providers that offer low-cost passive Pillar 3a investments.

How much tax do I save with Pillar 3a?

The amount paid, up to the annual maximum, can be fully deducted from taxable income. How much you can save depends entirely on your income and place of residence.

Moreover, contributions to Pillar 3a are exempt from wealth tax. The wealth tax rate varies between 0.1% and 1% per year. So, if you have 100,000 francs in Pillar 3a, you can save between 100 and 1,000 francs annually.

Example: Taxable income of 75,000 francs in the city of Zurich

With a taxable annual income of 75,000 francs, you pay 9,752 francs in taxes in the city of Zurich. If you now contribute the maximum amount of 7,056 francs to Pillar 3a, your income is reduced to 67,944 francs. You then pay only 8,308 francs in taxes. Thus, you save 1,444 francs in taxes per year.

How much money can I save with Pillar 3a?

This depends on your income, returns, how long and how much you contribute. Additionally, the maximum amount changes each year, and it is impossible to predict how high the maximum will be in the future.

For example, let’s use the maximum amount for 2024 and a duration of 40 years. We assume a return of 7%, which could be achieved with an ETF portfolio. Over 40 years, the portfolio grows to around 1.4 million francs.

The best providers

In this article, you will find the best providers for the third pillar. Currently, VIAC and Finpension are our recommended providers. Both offer ETF investments at very favorable conditions.

What taxes apply to Pillar 3a withdrawals?

As discussed, contributions can be fully deducted from taxable income. Furthermore, contributions to Pillar 3a are exempt from wealth tax. However, that does not mean that no taxes arise in relation to Pillar 3a.

Taxes on withdrawals vary depending on residence. Additionally, the capital withdrawal tax is progressive, which means it depends on the amount. Generally, it ranges from 2% to 10%. Due to the progressive tax rate, you pay less overall if you withdraw two times 50,000 francs instead of once 100,000 francs. More on that later.

Tax example for a one-time withdrawal of 500,000 francs

If you withdraw 500,000 francs at once, you will pay approximately 36,000 francs in taxes in the city of Zurich. Thus, the tax burden is 7.2%.

Saving tax on Pillar 3a withdrawals

As previously discussed, the capital withdrawal tax is progressive. This means that the higher the amount, the higher the tax rate. By dividing the withdrawals, you can reduce the tax burden. Taxes apply annually, so you must spread the withdrawal over several years. Since partial withdrawals are not possible with Pillar 3a, one should use several different accounts. The providers we recommend support having multiple portfolios.

Let’s look at an example of how much can be saved by spreading the withdrawal over several years.

One-time withdrawal of 300,000 francs

If you withdraw 300,000 francs at once in the city of Zurich, you will pay around 18,200 francs in taxes. Thus, the tax burden is 6.1%.

Staggered withdrawal, 3 x 100,000 francs

If instead you withdraw only 100,000 francs per year, you will pay 4,900 francs in taxes each time. Over three years, that totals 14,700 francs in total taxes. Thus, the tax burden is 4.9%. And you saved 3,500 francs in taxes.

When a Pillar 3a is not worthwhile

For people with low incomes, such as apprentices or students with part-time jobs, Pillar 3a generally does not make sense. Why is that? With a low income, you pay hardly any taxes in Switzerland. Apprentices typically pay no more than a nominal head tax. Their income tax is effectively 0%.

Thus, there are no tax savings when contributing money to a Pillar 3a. On the contrary, especially with investments, the money in Pillar 3a can grow enormously—particularly for young people with a 40-year investment horizon. And the tax upon withdrawal is not only due on the initial amount but also on the entire profit. If the money had instead been invested in a regular, open stock account, the entire profit would have been completely tax-free.

However, there are also other factors to consider. It is a good habit to start saving for retirement as early as possible. Contributing to Pillar 3a creates a good habit, which hopefully can then be maintained. It also prevents impulsive spending of the saved money since it is legally held in Pillar 3a.

Conclusion

Pillar 3a is a good way to save for retirement while also saving on taxes. It is particularly beneficial for individuals with medium to high incomes, as they can save a significant amount in taxes. Furthermore, it is a great option for self-employed individuals to establish solid retirement savings. It is important to inform yourself well and choose a suitable investment strategy. For most people, Pillar 3a investment portfolios are the best choice. And don’t forget: opening multiple accounts to save on taxes later is a smart strategy.