The third pillar: saving taxes through retirement planning

For a worry-free life in retirement, Switzerland relies on its proven three-pillar system, which enables financial stability and self-determination in old age. Here, the OASI, DI & EO as a basis of existence (1st pillar) and the Occupational Pension Scheme (2nd pillar) only cover about 60-75% of the last employment income. Therefore, in 1972, the third pillar was introduced, which is intended to close this income gap through private subsidized savings measures, thereby maintaining the accustomed standard of living even in retirement. In particular, Pillar 3a, as a tied pension scheme, holds potential for private tax savings for taxpayers in self-employed or non-self-employed employment. In this article, you will learn more about the tax-optimized design possibilities of Pillar 3a.

In non-self-employed employment, every taxable private person in Switzerland has the opportunity to pay a maximum annual amount of CHF 6,826 into the tied pension scheme and to deduct it from taxable income. In contrast, self-employed individuals who do not belong to a pension fund may pay up to 20% of their income up to a maximum of CHF 34,128 into the third pillar. This proportionally high deduction in the area of income taxation will bring a significant reduction in private tax burden. Optimally, the maximum deduction is used at all times over the income years and paid into the tied pension scheme. This allows an income smoothing over the life phases (from employment to retirement) and also alleviates the tax burden in the high-income employment years.

The tied pension scheme derives its name from the limited withdrawal options for paid-in capital, which can only be withdrawn under special conditions or during the 5 years prior to entering retirement age. On one hand, withdrawals of capital benefits from the pension scheme are taxed at a reduced tax rate. On the other hand, to additionally evade tax progression, it is also advisable to aim for smoothing with the payouts. The progressive tax rate causes a disproportionate tax burden with higher payouts. Therefore, it is advisable to spread the pension benefits over various policies and accounts. Ideally, these should be drawn sequentially (over the 5 years until retirement) instead of a large one-time payment.

Depending on the private living and income situation, it is possible to reduce the annual tax burden by up to CHF 2,000 through the pension benefits in favor of individual retirement provision. The saved retirement capital could also be used in Switzerland for the construction of an owner-occupied home or for self-employment. Smoothing of the income situation should be considered both at the time of payment (maximum amount, if possible) and at the time of withdrawal (5 equal vested benefits accounts).

For further questions, we are at your disposal at several locations throughout Switzerland. Findea AG concentrates its core business on SMEs and young companies in Switzerland in the fields of fiduciary, taxes, auditing, domicile, and management services. In close cooperation with STARTUPS.CH, Findea AG is thus the first point of contact for new business fields in Switzerland.

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