Contribution to the 2nd pillar

Contributing to the 3rd pillar to pay less tax in Switzerland: an essential strategy

In Switzerland, tax optimisation is a major issue for many taxpayers. Against this backdrop, the 3rd pillar is a simple, effective and affordable way to reduce your tax burden while preparing for retirement. This private pension scheme complements the first two pillars (AVS/AI and LPP) of the Swiss retirement system. It not only allows you to build up capital for the future, but also to benefit from significant tax advantages during your working years. This mechanism, designed to encourage individual savings, is of particular interest to employees and the self-employed, but also to people who want to plan their financial future with greater peace of mind.

Differentiating between 3rd pillar A and 3rd pillar B

It is essential to distinguish between two forms of 3rd pillar: 3rd pillar A (linked) and 3rd pillar B (unrestricted). Pillar 3a is regulated by law and specifically designed to encourage retirement provision. It is subject to strict conditions, particularly with regard to the maximum deductible amount and withdrawal terms. Pillar 3b, on the other hand, is more flexible: it allows you to save freely, with no legal ceiling, but does not entitle you to the same tax benefits, except in some cantons where partial deductions are possible.

The tax advantages of the 3rd pillar A

The main attraction of the 3rd pillar A is its tax deductibility. Each year, the amounts paid in can be deducted from taxable income. For employees affiliated to a pension fund (2nd pillar), the deduction limit is set at CHF 7,056 for the year 2025. For self-employed people not affiliated to a 2nd pillar, the limit is much higher: up to 20% of net income, with a ceiling of CHF 35,280.

This deduction can significantly reduce your taxable income, and therefore your tax liability, at federal, cantonal and municipal level. The higher your income, the greater the tax saving. This is an intelligent and tax-efficient way to save.

Concrete example of tax savings

Let's take the example of an employee in the canton of Vaud with a taxable income of CHF 100,000. By paying the maximum amount of CHF 7,056 into his Pillar 3a, he could reduce his annual tax bill by several hundred to several thousand francs, depending on his family situation and the tax scale applicable. In some cases, the saving can be as much as 25% to 30% of the amount paid in, which means that a payment of CHF 7,056 could result in a tax saving of up to CHF 2,000.

A lever for long-term tax optimisation

The tax impact of Pillar 3a does not stop in the year of payment. The savings accumulated are capitalised at a rate that is generally higher than that of a traditional savings account, particularly if they are invested in insurance products or investment funds. What's more, the gains generated by 3a savings are not taxed as long as the capital remains blocked in the pillar. On withdrawal, the amount withdrawn is taxed separately from the rest of your income, at a preferential rate that is generally lower than the rate for ordinary income.

When and how do I withdraw my 3rd pillar capital?

Pillar 3a capital may be withdrawn no earlier than five years before the legal retirement age (64 for women, 65 for men). However, there are certain specific circumstances in which early withdrawal is possible: buying your principal residence, becoming self-employed, leaving Switzerland permanently or becoming disabled.

On withdrawal, the capital is taxed separately at a reduced rate. It is often advisable to spread your payments over several 3a policies in order to stagger withdrawals and reduce the tax burden on withdrawal. This strategy is an intelligent way of optimising taxation, especially if the capital saved is large.

Bank or insurance: which solution should you choose?

Pillar 3a can be taken out with a bank or an insurance company. The bank solution offers great flexibility, low fees and the option of investing in investment funds to boost returns. It is particularly suited to people who are independent in managing their finances and want to maximise the performance of their savings.

Pillar 3a insurance, on the other hand, often includes additional benefits, such as cover in the event of death or disability. This is an attractive solution for people who want to combine savings with security, particularly if they have family responsibilities. However, it is less flexible: premiums are fixed and changes are more complex.

Optimisation: several pillars, several withdrawals

We strongly recommend that you spread your payments over several 3rd pillar policies (for example, three or four separate 3a accounts). This way, when you retire, you can withdraw the amounts over several years. This strategy makes it possible to avoid a tax plateau effect when making the overall withdrawal, by taking advantage of the progressive taxation of the capital withdrawn.

This approach is particularly appropriate for high earners or people who have built up substantial capital over the years. Fractional withdrawals can generate significant tax savings.

A useful tool for couples and families

In a couple, each person can open a separate Pillar 3a and make payments according to their own income. This makes it possible to optimise tax twice over. What's more, some parents make contributions on behalf of their children, even if the latter do not yet have a taxable income: these amounts are not tax-deductible, but they do help them learn to save and build up assets for future education or the purchase of a home.

The self-employed: an even more powerful lever

The self-employed, who are not subject to the LPP, can take advantage of a much higher deduction ceiling. This mechanism is a real godsend for reducing the tax burden while building up retirement capital. For these people, it is often a good idea to combine the 3rd pillar A contribution with other tax strategies, such as setting up a company or taking out an occupational pension.

Avoid common mistakes

Despite the advantages of the 3rd pillar, certain mistakes can limit its effectiveness. The most common mistakes include waiting until the end of the year to contribute (which can reduce investment opportunities), failing to diversify policies, or taking out an insurance policy without understanding its long-term commitments. It is also essential to check that payments are made on time so that they can be taken into account in the current tax year.

3rd pillar and estate planning

The 3rd pillar A is also an interesting tool when it comes to inheritance planning. In the event of death, the beneficiaries defined in the contract will receive the amounts without going through the ordinary estate, which avoids certain legal constraints. Tax treatment varies depending on the canton and the relationship to the deceased, but is generally more advantageous than a capital sum paid via a traditional inheritance.

An essential addition to Swiss pension provision

At a time when the financing of pensions is increasingly uncertain, the 3rd pillar is an essential safety net. It allows you to ensure a decent standard of living in retirement, anticipate any drop in income and face the unexpected with peace of mind. At the same time, it offers immediate and tangible tax benefits, making it a win-win solution.

Conclusion: a strategy not to be neglected

Contributing to the 3rd pillar is one of the simplest and most accessible ways of paying less tax in Switzerland while building a solid financial future. Whether you are employed or self-employed, young or at the end of your career, this solution is suitable for everyone. The key is to plan ahead, choose your bank and insurance wisely, diversify your policies and take a long-term view.

To maximise the benefits of this strategy, it is advisable to enlist the help of a tax or pensions expert, so that you can tailor your choices to the specificities of your personal situation. In this way, the 3rd pillar will no longer be just a tool for reducing tax, but a genuine pillar of security and financial freedom.