The pillar 3a – or what most people call a 3rd pillar pension – is a private, voluntary scheme, designed to encourage individuals resident in Switzerland to save for their own futures.
This is incentivised by the Swiss government in the form of a tax deduction. For every Franc paid into a pillar 3a, a Franc is taken away from your taxable income.
For most people utilising the maximum tax-deductible amount (CHF 6,883 for employees, CHF 34,416 for self-employed in 2021), this equates to an average reduction in income tax paid of CHF 1,500-3,500, per person, every year.
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Unfortunately, if you do not use this tax advantage by 31st December, you lose. This use it or lose it system makes it crucial for individuals to take advantage of the tax breaks while available.
Broadly speaking there are 3 investment options;
- Variable interest rate; based on the Swiss base rate but typically in the range of 0-1% p.a.
- Capital guaranteed + funds/ETFs; a combination product providing protection + investment growth, usually averaging 3-6% p.a.
- Funds/ETFs + no guarantee; effectively an investment portfolio with no protection sitting within a pension structure, historically returning 3-14% p.a. (investment selection dependent)
The downside of a pillar 3a is that access can only be given to this money under certain conditions; retirement, leaving Switzerland, for property purchase, to set up a business, or in case of long-term disability or unemployment. It is, after all, a pension.
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Contrary to common knowledge, it is possible to keep, and even contribute to your pillar 3a even if you leave Switzerland, provider dependent.
Lastly, there are also significant benefits to utilising a pillar 3a toward a deposit, or repayments for, a property purchase in Switzerland.
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