How does the 3rd pillar work? - Simply explained

Switzerland has been using 3-pillar system for personal retirement provision and family well-being for around 50 years now The first, mandatory pillar consists of the old-age insurance, also known as AHV. Its purpose is to ensure a minimum income to cover basic costs at retirement age. It is based on the principle of solidarity and is financed by the working population, which pays wage contributions. The second pillar, also known as the pension fund or BVG, is also mandatory for most working people and is intended to contribute to a higher income in retirement. 
However, the first and second pillars together cover only about 60-70% of the last income before retirement. If you want to maintain your standard of living after retirement, you should consider the third pillar at an early stage. In this article you will find all the important information about the two types of third pillar.

What is the third pillar?

The third pillar is an individual, private and voluntary insurance. You can take it out as long as you are gainfully employed. There are two types of third pillar: the tied pension plan, also known as pillar 3a, and the untied pension plan, which is also known as pillar 3b.

Who can pay into the third pillar?

All persons who are resident and working in Switzerland can open a pillar 3a. Also sole proprietors or under certain circumstances ANobAG, who cannot join a pension plan, can save for their pension with the third pillar. Pillar 3b can also be opened by non-employed persons.

What is the difference between pillar 3a and 3b?

Both pillars are part of the private pension plan. However, there are some differences:

Tied personal pension plan (3a)

• This allows you to accumulate savings for retirement with an insurance company or bank.
• There is a maximum annual amount (2025: CHF 7'258) that can be paid in.
• Return on insurance of up to 3.6% on average, higher interest than savings accounts
• Contributions to pillar 3a are tax deductible, savings of up to CHF 3'000 are possible.
• Certain conditions apply to the withdrawal of the savings capital
• A one-time tax (capital payment tax) is due when the savings capital is withdrawn

Unrestricted personal pension plan (3b)

• With this you build up savings in the form of cash, savings books, life insurance or investments
• There is no annual maximum amount
• The saved balance must be taxed as assets
• The savings balance can be paid out unconditionally and at any time
• No one-time tax is due on the payout
• The contributions made are not tax-deductible

What is the maximum amount that can be paid into pillar 3a?

Individuals who already pay into Pillar 2a and are therefore affiliated with an occupational pension plan can pay in a maximum of CHF 7'258 in 2025. For employed persons who do not have an occupational pension plan, the maximum amount is 20% of the earned income, with the maximum amount in 2024 being CHF 36'288 per year. 

How long can I pay into pillar 3a?

If you can prove that you are still gainfully employed after retirement age, you may continue to pay into pillar 3a for up to five years. However, as soon as you stop working or no later than five years after reaching regular retirement age, the capital must be withdrawn.

How can I save taxes with pillar 3a?

If you pay into the third pillar, you may deduct it from your taxes. The contributions made, up to a maximum of CHF 7'258 for employed persons with a 2nd pillar or CHF 36'288 for employed persons without a 2nd pillar, can be deducted in the tax return. The taxable income decreases, and due to the tax progression, so does the tax rate. Thus, as a gainfully employed person with a 2nd pillar, you can save up to CHF 3'000 in taxes per year. For employed persons without a 2nd pillar, the tax savings can be even significantly higher. 

At what point can I withdraw my pillar 3a capital?

The capital from pillar 3a can be withdrawn as early as five years before reaching the AHV retirement age (2024: 65 for both women and men), but must be withdrawn no later than five years thereafter. In the context of retirement, this is also referred to as ordinary withdrawal. 
Under certain conditions, however, early payment of benefits from pillar 3a is also possible. Possible reasons for this are:

• Leaving Switzerland (emigration) 
• Taking up / changing to a self-employed activity
• Construction or purchase of owner-occupied residential property
• Death of the insured person
• Repayment of a mortgage
• Drawing a full disability pension

What are the advantages of a pillar 3a with an insurance company?

• Guaranteed risk protection: With a pillar 3a pension solution from an insurance company, insurance coverage for disability or death is included. Depending on the need, in the event of disability either a premium waiver is included or an annuity is paid out to cover any loss of income. In the case of death insurance, a lump-sum death benefit is paid out to protect the dependents from the financial consequences of such a stroke of fate. 
• Optimal return: It is an interesting investment with an optimal return (average 3.6% return over the last 20 years, can be hedged annually)
• Waiver of premiums: in the event of disability, the insurance company will assume payment of the agreed premium on your behalf (on a pro rata basis in the event of partial disability), so that you will achieve your savings goal in any case.
• Adaptation to personal needs: With most providers, the agreed premiums can be adjusted to changing needs, and premium breaks are also possible
• Different models for all risk types: Adapt pillar 3a to your risk needs by choosing between pension policies with guaranteed capital or higher-risk, unit-linked pension policies

Would you also like to make provisions for your future and save retirement capital in an attractive and secure way with a third pillar? We would be happy to support you. Contact us now and receive competent and personal advice from long-standing insurance experts.