Why is the 3ᵉ pillar important before retirement?

The 3ᵉ pillar refers to optional individual retirement savings that supplement the 1ᵉʳ and 2ᵉ pillars of the Swiss old-age pension system. In practical terms, it involves building up additional capital to optimise your income after you stop working. Here are a few reasons why it is important for you to build up this pillar before you retire.

The 3ᵉ pillar helps you maintain your standard of living

With AVS and occupational pension provision alone, your standard of living when you retire is likely to fall significantly compared with your working income. But by voluntarily saving through the 3ᵉ pillar, you can ensure additional financial income from the age of 64 or 65.

In this way, you maintain your purchasing power so that you can enjoy your retirement to the full. The 3ᵉ pillar also offers the possibility of receiving your capital all at once on retirement, rather than as an annuity, and this sum can be used to complete a project such as a holiday home.

This plan offers significant tax advantages

Payments made each year into a 3ᵉ pillar are tax-deductible within certain limits. This tax advantage allows you to save on tax as soon as you fund the account. When you retire, benefits from the 3ᵉ pillar are taxed separately from other income and at a reduced rate.

Here too, you optimise your tax burden thanks to this pillar. These advantages encourage you to start building up a 3ᵉ pillar as early as possible. This means that capitalised interest benefits from tax deductibility for longer.

It offers you great flexibility

Unlike the 1ᵉʳ and 2ᵉ pillars, the 3ᵉ pillar is not a compulsory scheme. You are free to choose whether or not to use it, as well as the amount of your annual payments. This flexibility allows you toadapt your contributions to your personal situation and to changes in your income over time.

You can also decide to top up your 3ᵉ pillar on an irregular basis, depending on your priorities and constraints at different stages of your career and family life. This ability to adapt over time helps you to modulate your retirement savings effort while remaining in control of your choices.

This capital allows you to protect yourself against the hazards of life

The 3ᵉ pillar constitutes precautionary savings in the event of a hard blow. It serves as a safety net if you become disabled or unemployed. Moreover, the benefits of the 1ᵉʳ and 2ᵉ pillars are reduced in these situations.

This individual pillar can also make up for an insufficient 2ᵉ pillar purchase if you divorce. It can still compensate for a drop in income following redundancy or illness. The 3ᵉ pillar thus cushions your contingencies thanks to its flexibility.

You can pass on the 3ᵉ pillar to your nearest and dearest

The money invested in your 3rd pillar forms part of your estate in the event of your death. Your next of kin inherit this capital and can therefore dispose of it in their own way. Note above all that you are free to designate beneficiaries in your pension provision clause. They can be your spouse, your children, your grandchildren, etc.

What's more, this capital can help finance your grandchildren's education, for example. It can also be used to help your children buy their own home. As a result, you are helping your loved ones with these savings.

It improves your replacement rate on retirement

The replacement rate is the ratio between your income after retirement (1ᵉʳ and 2ᵉ pillars) and that received during your working life. For many, this rate is insufficient to maintain their standard of living. By funding a 3ᵉ pillar continuously during your working years, you improve your replacement rate when you retire.

Your income after you stop working will thus be more comfortable. Better still, you can get closer to the 60% considered a minimum to maintain your standard of living in retirement thanks to this additional pillar.

This capital gives you more freedom to set your retirement age

As life expectancy increases, so does the legal retirement age. Having a substantial 3ᵉ pillar allows you to consider early retirement if you wish. In fact, this personal capital gives you the freedom to choose your retirement age, without depending solely on the compulsory systems.

So you can retire earlier than planned. Conversely, these savings also protect you in the event of a late retirement. Your needs remain covered, even if you work beyond the statutory retirement age. This pillar gives you flexibility.

Diversify your retirement investments with this savings vehicle

In addition to AVS and occupational pension provision, which are compulsory investments, the 3ᵉ pillar allows you to diversify your retirement savings. You can invest in more dynamic vehicles that are likely to generate higher returns over the long term. This diversification increases your chances of optimising the overall return on your retirement savings.

The 3ᵉ pillar, a means of strengthening your financial independence

This means of individual savings increases your financial autonomy for retirement. The beautiful proof, you build up additional income even while being partially dependent on compulsory schemes (AVS and 2ᵉ pillar).

Incidentally, this relative financial independence is important if you are to look to the future with peace of mind after your working life. The 3ᵉ pillar therefore reinforces your freedom of choice when you retire.

It allows you to finance life projects before retirement

One of the best features of the 3ᵉ pillar is the possibility of making early withdrawals before retirement age, but subject to certain conditions. These allow you to release your capital to carry out personal or family projects well before you stop working. For example, you can use your 3ᵉ pillar to:

• buying your main residence ;
• starting your own business; or
• sabbatical leave or professional retraining;
• work to extend your home.

This flexibility of unlocking offers youinteresting prospects for giving substance to your ambitions well before retirement. So the 3ᵉ pillar is not confined solely to preparing for your old age!