Swiss Pillars

The Swiss pension system is known as the three pillars:

• 1st pillar – state pension generated through monthly AHV contributions
• 2nd pillar – occupational pension generated through employer contributions and/ or your contributions
• 3rd pillar – additional private plan that allows you to contribute extra towards your retirement (up to 6’768 CHF a year – allowance for 2017)

The 3rd pillar is intended to make up any potential shortfalls between your final salary and your workplace pension. If the first pillar and the second pillar are insufficient once retirement age is reached, it is essential to supplement your income with the third pillar.

3rd pillars also offer other benefits including:

• Being able to reduce your income tax liability
• Being able to reduce your pension shortfall at retirement
• Contributions are exempt from wealth tax and income tax on the interest and capital gains
• Policies can offer a guaranteed minimum growth amount and a guaranteed capital on maturity
• A 3a pillar (see below) can be used towards a property purchase
• Life insurance and disability benefits can be included within a 3a pillar
• 3a pillar contributions can be used to help set up your business if you become self-employed

In Geneva in 2017 according to the tax administration’s guidelines, the 3rd pillar offered the following tax deductions:

• For single, widowed, divorced and legally separated individuals, the maximum amount of tax deduction for a free 3rd pillar is CHF 2’200 per calendar year
• For spouses / registered partners living in the same household, the maximum amount of tax deduction for a free 3rd pillar is CHF 3’300 per calendar year
• You could also claim an additional tax deduction of CHF 900 per child per calendar year

All 3rd pillars are based around two types: 3a pillar and a 3b pillar. Here is an overview:

Pillar 3a – restricted pension plans:

• Employed people who belong to a pension fund and the self-employed can pay into pillar 3a
• Gainfully employed persons with occupational retirement provision can pay in the maximum annual amount of CHF 6,768 – from January 1, 2016 – and deduct it from their taxable income
• Self-employed persons without occupational retirement provision but with AHV income can pay in a maximum of CHF 33,840 – up to a maximum of 20% of their earnings from gainful employment – and deduct it from their taxable income
• Tax-privileged pension provision – contributions may be deducted from a taxable income up to a maximum sum
• Choice between pure saving solutions or saving solutions combined with insurance coverage – the advantage of an insurance solution is that pension shortfalls can be covered in the event of disability or death (in the event of death, relatives receive a lump-sum death benefit pursuant to a legally prescribed order of beneficiaries)
• Amounts saved in 3a restricted pension plans can only be drawn prematurely under certain conditions, e.g. in order to purchase occupational retirement provision, when taking up self-employed work, when leaving Switzerland or to finance owner-occupied residential property

Pillar 3b – unrestricted pension plans:

• Open to all: whether you work in Switzerland or you are a border commuter
• Contract is free and secured by the insured
• Possible to withdraw the funds when having a minimum of three years’ contract – no specific pattern is needed to justify the release of the policy
• The policyholder, the insured and the premium payer can be different people (this allows combining the role of each person to get a contract and adapt it to their needs)
• Several people can have a single third pillar contract and the beneficiary clause remains completely free: you name the recipient(s) you want, for example allowing you to prioritise certain heirs
• There is no limit on payment of such contracts, so you have the freedom to choose the amount you wish to deposit
• A tax deduction is allowed for contributions according to different canton regulations (as a general rule contributions to a Pillar 3b are not tax-deductible, except in Canton Geneva)