Some info about the 3rd pillar ?
What is a 3rd pillar?
The 3rd pillar is the private pension. It is optional, but necessary for a pleasant and well-deserved retirement. The Confederation encourages individual pension provision through tax benefits. If you do not yet have a 3rd pillar and would like to have more than half of your salary at retirement age, this is the article you should definitely read!
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Le 3ème pilier : l'épargne indispensable
Quelle économie fiscale réalise-t-on avec un 3e pilier A ?
You prefer reading?
The 3rd pillar and its solutions
The 3rd pillar is the only private component of the Swiss pension system. Here the word private means that you have control over almost all aspects of this form of pension provision.
This is where it gets complicated. There is the 3rd pillar A and the 3rd pillar B. While the 1st can be subscribed either with an insurance company or with a bank, the second can only be done in an insurance company. You can open more than one, but you cannot deduct more than a given amount, set yearly by the Confederation. One can be withdrawn at any time, while the other is blocked until retirement age, at the exception of couple of cases. They can be invested or not, they can even include disability pensions or death benefits.
The 3rd pillar is so vast that people have the unfortunate tendency to only consider its tax deductibility and forget the essential: to support the AVS and LPP in the context of retirement!
I'm even willing to bet that one of the reasons that led you to this page can be broken down into 3 steps:
1- You have just faced the colossal amount of tax that Switzerland is asking you to pay.
2- Since that day, you have sworn to yourself that you will find a way around this aberration.
3- And finally, your quest for tax savings led you to buy a house, have children, buy back years of LPP and, of course, open a 3rd pillar.
Let’s focus on the 3rd option.
And even if the first reason is normally retirement, saving taxes is not so bad.
It is important to look deeper into the third pillar offerings in order to find the product that suits you best.
Reclaiming your 3rd pillar
You have been saving into your 3rd pillar for several years now and you think it is time to take advantage of it.
So you wanted to find out how you can kindly ask your advisor to return it to you. And to do that, you need to find a solid reason. Keep calm, there are plenty of reasons to get your 3rd pillar assets back:
- Buying your own property
- The desire to start an independent activity
- Leaving Switzerland
- A case of disability
Or simply up to 5 years before your legal retirement age
Before offending the most sensitive, I would like to specify that all these reasons only concern the 3rd pillar A because the B can ALWAYS, in ALL cases, be recovered without any justification.
Taxation of the 3rd pillar
You must admit that when you learned that having a 3rd pillar saved you a significant amount of taxes, you were happy? However, if I tell you immediately afterwards that when you ask to get it back, the tax authorities are going to come down on you, it's immediately less funny... What's the point of saving taxes if you have to pay them later?
Well, it's quite subtle, because the tax rates are not the same and therefore the amounts retained by tax authorities are not the same. During your working life you will be able to
deduct all your contributions from income tax, and many of us know how much this income tax hurts. When the time comes, you will have to pay some, but at a so-called "preferential rate” which only applies in the case of retirement (2nd and 3rd pillar). This may sound strange, but the same scales are generally used to calculate both, except that in one case the scales are standard and in the other the same scales are split.
All in all, the savings you will have made over the years will always be greater than the tax you will have to pay at the time of withdrawal.
3rd pillar contributions
The 3rd pillar is very useful, that's for sure! But we haven't yet looked at how much we can contribute? How much can we put into our 3rd pillar A in order to be able to deduct it for tax purposes? And what about the 3rd pillar B? Are they identical? Can we have several 3rd pillars in order to contribute more ?