The 3rd Pillar – Ensuring a Comfortable Standard of Living at Retirement

Understanding Pillar 3 – Savings

When planning for retirement, it’s essential to consider the 3rd pillar. Many statistics indicate that passive income at retirement will account for about 60% of the last earned income before retirement. This income comes from the AHV (State Pension) and your employer’s pension. However, for newcomers to Switzerland, this percentage may be lower due to missing contributions. Therefore, it’s wise to build a personal restricted pension provision in the form of pillar 3.

Pillar 3a (Restricted Pension Provision)

Pillar 3a allows you to choose your type of investment or savings, which are tax-deductible from your taxable income. The maximum savings for pillar 3a is CHF 7,056 per calendar year for employees (as of 2023) or 20% of income for the self-employed, up to a maximum of CHF 35,280 per calendar year.

Example of Pillar 3 Savings (3a):

– Single person, no children
– Taxable income: CHF 100,000
– Taxed in Canton Zürich

Without Pillar 3a:
– Taxable income: CHF 100,000
– Taxes due: Local city taxes, Cantonal taxes, Federal taxes
– Total taxes: CHF 17,316

With Pillar 3a:
– Taxable income: CHF 92,944
– Taxes due: Local city taxes, Cantonal taxes, Federal taxes
– Total taxes: CHF 15,419
– Annual savings: CHF 1,897

Pillar 3b (Unrestricted Pension Provision)

Pillar 3b allows you to add further retirement provisions individually. Unlike pillar 3a, contributions to pillar 3b cannot be deducted from income tax. However, it is not subject to strict legal regulations like pillar 3a. A major advantage is that beneficiaries can be freely selected, and further attractive tax benefits may be available through insurance products.

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