Last update: 17.09.2024 08:34
The 3rd pillar is your voluntary, private pension provision for retirement. How well do you know about it? We clear up the most common pillar 3a misconceptions and myths. Are you right about all the questions? Find out.
Pillar 3a misconception & myth no. 1: I won’t be able to access my 3a assets before I retire.
Wrong. For certain purposes defined by law, you may also withdraw your 3rd pillar funds beforehand. These include, for example, financing or renovating owner-occupied residential property or financing self-employment. Even if you leave Switzerland permanently, you will get your money back. Or if you want to repay a mortgage.
Pillar 3a error & myth no. 2: Pillar 3a is superfluous, AHV and pension fund are sufficient.
You can see it like this. We think: “Help yourself and you will be helped”. According to the Raiffeisen Pension Barometer 2018, 75% of Swiss people believe that they are responsible for their own financial retirement provision. 45% have confidence in the future viability and financial strength of their own private pension provision with the 3rd pillar. Only 15% each rely on AHV and Pillar 2.
And almost two thirds of respondents believe that they will need the same or even more money after retirement than before. Pensions from the AHV and pension fund together should reach around 60 percent of the income earned before retirement (so-called replacement rate). The AHV and 2nd pillar are under enormous pressure due to demographic developments, the valid benefit commitments and the low interest rate level. Benefits are constantly being adjusted accordingly. In recent years, average pension fund pensions adjusted for purchasing power have fallen by 9 percent and new BVG pensions are lower than current BVG pensions. Many people therefore underestimate their pension gap. If you believe that pillar 3a is superfluous, you are probably one of them.
Pillar 3a misconception & myth no. 3: I’m only 28 years old, you don’t have to pay into the 3rd pillar until later.
Wrong. Firstly, you don’t have to pay into the 3rd pillar. It is voluntary. Secondly, you can pay into the 3rd pillar as soon as you start working and have an income subject to AHV contributions. The earlier you start, the better: firstly, you get used to setting aside part of your income for your private pension. Secondly, you benefit from a long investment horizon. The longer the period until retirement, the greater the compound interest effect on your savings. The effect of compound interest is dramatically underestimated. In the case of pension funds with equity investments, you benefit from their higher returns – the risk remains, but decreases with a long investment horizon.
Pillar 3a misconception & myth no. 4: If I no longer work, I can continue to pay in and leave the money.
Wrong. You are not allowed to pay in new funds – this is only possible in the years in which you earn an income subject to AHV contributions. However, it is true that you can leave the 3a investments in your account if you are temporarily or permanently unemployed. They will generate tax-free income for you until your normal retirement age.
Pillar 3a misconception & myth no. 5: If I take early retirement, I have to withdraw the 3a money.
Wrong. Even if you take early retirement, you can leave the money in your account until normal retirement age – or withdraw it up to 5 years earlier.
Pillar 3a error & myth no. 6: I work part-time. That’s why I can’t pay in the maximum amount.
Wrong. You are only allowed to pay into pillar 3a if you have income subject to AHV contributions in the year of payment. Even if you only work 20%, you can pay in the maximum amount. There are no rules or regulations that link your pillar 3a payment to your level of employment.
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Pillar 3a misconception & myth no. 7: It’s not worth it for me because I can’t pay in the maximum amount.
Wrong. Firstly, you don’t have to deposit the maximum amount, you can only deposit up to the maximum amount. The earlier you start paying in, the better it is for you (see myth no. 3). And it is also better to pay in at the beginning of the year than at the end. Even if you can’t pay in the maximum amount, you still benefit from a major tax advantage.
Pillar 3a error & myth no. 8: It is best to invest my 3a assets safely. That’s why I need to take out 3a insurance or an interest-bearing account.
Wrong. You can invest 3a funds in a pension foundation as a savings account or in pension funds. Banks and insurance companies offer corresponding products, some of which also include insurance elements (e.g. payment of contributions in the event of occupational disability). However, you should always separate savings and insurance. Securities in pillar 3a are also suitable for a long investment horizon and can generate significantly higher returns for you. Whether you can cope with the value fluctuation risks associated with securities depends on your risk tolerance and your investment horizon. At least from 1926 to 2018, according to a study by Pictet Bank, you have always achieved a positive total return with Swiss equities over any investment period of more than 13 years. Over the same period, the Swiss equity market grew in value by an average of 7.6 % – per year.
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Pillar 3a misconception & myth no. 9: You can only have one pillar 3a account.
Wrong. You can open more than 1 retirement savings account. This is even recommended because an account must always be fully withdrawn when you retire. Pension accountonto closes in this context pillar 3a savings account, pillar 3a securities solution and pillar 3a insurance policy. You can have several pillar 3a securities and pillar 3a accounts at the same time and with different banks or financial service providers. Then later, with A lump-sum payment tax is payable on the withdrawal of pension benefits. This is independent of income tax. If you then receive pension benefits (such as from 2nd pillar, 3rd pillar) spread over several years, you can reduce the amount of capital payment tax (keyword: tax progression). It therefore makes sense to set up several pillar 3a accounts. How many? It makes little sense to have more than 5 accounts because you can only close the pillar 3a account 5 years before the normal AHV retirement age. You can also postpone the withdrawal for up to 5 years (and continue to pay into pillar 3a) if you are employed after the normal retirement age. In other words, as a man (woman), you can withdraw 3a funds from the age of 60 (59) at the earliest, but no later than 70 (69).
Pillar 3a error & myth no. 10: I can split my 3a account into several accounts at a later date.
Wrong. Due to your age, you may only withdraw funds from a 3a account as a total amount. You can also only “move” to another provider with the total amount of an account. Partial withdrawals are not possible. It therefore makes sense to set up and fund several 3a accounts during the savings phase. The amount up to which a 3a account should be “topped up” depends on the tax progression of your municipality. It is advisable to add another account from CHF 25,000, and from CHF 50,000 at the latest. This allows you to withdraw funds flexibly and better diversify your investments and thus your risks.
Pillar 3a misconception & myth no. 11: You cannot switch from a 3a insurance solution to a 3a bank solution or vice versa.
Wrong. You can open a 3a savings account at a bank and later transfer it to a 3a policy – and vice versa. In most cases, this does not make sense. With all 3a life insurance policies, you are generally tied to the provider you have chosen, even if your contract – as is often the case with self-employed people – allows for flexible deposit amounts. Cancellation of the insurance policy is usually associated with relatively high costs (i.e. losses) for you. The insurance company calculates a so-called surrender value – how much of the capital you have paid out to date will be paid out to you to transfer it to another provider. This is particularly low in the early years. This is because the premiums for the insurance benefit, the administration of your policy and the broker’s commission are deducted from your annual premium. So here’s a tip to get you started: separate savings from insurance and, as a young, single person, don’t take out any long-term 3a policies with an insurance component. Or do you need death cover so that your pet is provided with CHF 100,000 if the worst comes to the worst?
Pillar 3a error & myth no. 12: I can catch up on my pillar 3a payment later.
(still) Wrong. If you haven’t paid into your pension fund in one year, you can’t make up for it at the moment (2021) and you can’t claim it against tax – unlike when you buy into your pension fund. But: the last attempt at a political level was finally successful. After the Council of States (September 2019), the National Council also adopted a motion (in June 2020). The Federal Council is now tasked with drawing up a corresponding implementation proposal. You can find more details in this article. Until then, a lot of water will certainly still be flowing down the Aare – so it’s better to pay in now rather than wait.
Pillar 3a error & myth no. 13: I have to declare the 3a assets as assets for tax purposes.
Wrong. Your pillar 3a assets, whether in the form of an insurance policy, an account or a securities investment, do not have to be listed as taxable assets in your tax return. This means that not only is the annual interest or income on your 3a investment tax-free, but you also save on the annual wealth tax. You can find the 5 most important tax tips relating to pillar 3a in this article.
Pillar 3a misconception & myth no. 14: Shares in pillar 3a are complicated and expensive.
Wrong. Index funds have found their way into pillar 3a inrecent years. These boringly track an index instead of a fund manager searching in vain for the “best” shares. The costs of investing in index funds are much lower than with active funds. And various providers have made it very easy to invest your savings in a broad portfolio of index funds.
Pillar 3a error & myth no. 15: When I retire, I have to withdraw all my 3a assets. Even if my securities are in the red.
Wrong. If you are still working after retirement age, you can leave your pillar 3a funds for up to 5 years (age 70 for men / age 69 for women). This is called “deferring the withdrawal”. Unfortunately, only a few financial institutions still allow you to transfer your investment funds to your private custody account at the time of retirement. Instead, they sell the funds and pay out the proceeds. If your provider does not allow this either, it makes sense to gradually reduce the proportion of securities in pillar 3a before retirement. This will reduce your risk of fluctuations in value at the time of retirement.
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