Save tax with pillar 3a – twice over

Nov 9, 2020.

Most people know that you can save tax with pillar 3a. But few realise that this pillar is doubly worthwhile. You can save tax not only when you make a deposit, but also when your balance is paid out. Our expert Marco Palermo explains how to save enough to pay for your next holiday or even a family car.

A pillar 3a account is very important for your personal retirement provision. It allows you to maintain your standard of living after you retire. With a pillar 3a, you not only finance your old age, but also save a lot of tax.

 

The tax advantages at a glance:

  • Deposits: You can deduct the amount you pay into pillar 3a from your income tax. So you pay less tax.
  • Withdrawals: Your pillar 3a capital is not taxed until you withdraw it. Even then, it is taxed separately from your other income at a lower tax rate. Here, too, you can save tax if you have your capital paid out in stages. 

 

 

1. SAVE TAX WHEN PAYING INTO PILLAR 3A

You can completely deduct everything you pay into pillar 3a from your income tax. Depending on your canton of residence, your income and the amount of your deposit, you can save up to CHF 2,000 in tax annually with your pillar 3 account.

 

You can find the current statutory maximum amounts here.

 

Example: Mustermann family

We show you how much you can save as a family, using the example of the Mustermanns.

Petra (34) and André (35) live with their two children, Emilia (6) and Tobi (4), in a rented apartment in Neuchâtel.

 

Monthly household income:

  • André earns CHF 4,715 a month, net, working on an 80% basis. Petra earns CHF 1,768 net, working on a 30% basis.
  • Together they earn CHF 6,483 plus CHF 400 in child allowances.

Like most families. André and Petra Mustermann are unable to save the maximum amount each year. Together, they pay CHF 2,000 into pillar 3a each year.

 

 

Pillar 3a depositsAndré Mustermann AmountCHF 1,000
Pillar 3a depositsPetra Mustermann AmountCHF 1,000

The Mustermann family live in the canton of Neuchâtel. With the above payment into pillar 3a they can save quite a lot on tax:

  • Tax advantage per year (average over entire savings period): approx. CHF 600
  • Tax advantage in just under 30 years (tax-adjusted): approx. CHF 14,000

 

What is it like in the other cantons?

The following table shows how much tax you can save per year if you live in the respective canton capital and pay CHF 4,000 (2020) there into pillar 3. With a maximum deposit, the above savings increase by around a third – unless you live in Altdorf and have a gross income of CHF 70,000.

 

 

Tax savings per year with a CHF 4,000 payment into pillar 3a

 

Source: Own calculation based on the tax calculator of the Federal Tax Administration.

Calculation basis: Married, two incomes (70% and 30% workload), two children, no religious affiliation.

 

Canton/MunicipalityAG/Aarau CHF 50'000167 CHF 70'000394 CHF 90'000501 CHF 120'000824
Canton/MunicipalityAI/Appenzell CHF 50'000191 CHF 70'000397 CHF 90'000534 CHF 120'000676
Canton/MunicipalityAR/Herisau CHF 50'000305 CHF 70'000592 CHF 90'000717 CHF 120'000887
Canton/MunicipalityBE/Bern CHF 50'000297 CHF 70'000672 CHF 90'000733 CHF 120'000896
Canton/MunicipalityBL/Liestal CHF 50'0000 CHF 70'000891 CHF 90'000910 CHF 120'0001'206
Canton/MunicipalityBS/Basel CHF 50'0000 CHF 70'0000 CHF 90'000594 CHF 120'000998
Canton/MunicipalityFR/Fribourg CHF 50'00072 CHF 70'000535 CHF 90'000629 CHF 120'000972
Canton/MunicipalityGE/Genève CHF 50'0000 CHF 70'0000 CHF 90'000643 CHF 120'0001'108
Canton/MunicipalityGL/Glarus CHF 50'000375 CHF 70'000517 CHF 90'000611 CHF 120'000853
Canton/MunicipalityGR/Chur CHF 50'0000 CHF 70'000165 CHF 90'000593 CHF 120'000866
Canton/MunicipalityJU/Delémont CHF 50'000165 CHF 70'000637 CHF 90'000790 CHF 120'000951
Canton/MunicipalityLU/Luzern CHF 50'0000 CHF 70'000568 CHF 90'000609 CHF 120'000772
Canton/MunicipalityNE/Neuchâtel CHF 50'00054 CHF 70'000775 CHF 90'000943 CHF 120'0001'141
Canton/MunicipalityNW/Stans CHF 50'00019 CHF 70'000413 CHF 90'000579 CHF 120'000739
Canton/MunicipalityOW/Sarnen CHF 50'0000 CHF 70'000513 CHF 90'000683 CHF 120'000763
Canton/MunicipalitySG/St.Gallen CHF 50'0000 CHF 70'000614 CHF 90'000615 CHF 120'000965
Canton/MunicipalitySH/Schaffhausen CHF 50'000186 CHF 70'000426 CHF 90'000553 CHF 120'000739
Canton/MunicipalitySO/Solothurn CHF 50'000365 CHF 70'000588 CHF 90'000713 CHF 120'000959
Canton/MunicipalitySZ/Schwyz CHF 50'00036 CHF 70'000330 CHF 90'000452 CHF 120'000601
Canton/MunicipalityTG/Frauenfeld CHF 50'0000 CHF 70'000476 CHF 90'000627 CHF 120'000889
Canton/MunicipalityTI/Bellinzona CHF 50'0000 CHF 70'0000 CHF 90'000302 CHF 120'000919
Canton/MunicipalityUR/Altdorf CHF 50'0000 CHF 70'0001'488 CHF 90'000547 CHF 120'000547
Canton/MunicipalityVD/Lausanne CHF 50'00074 CHF 70'000465 CHF 90'000651 CHF 120'000933
Canton/MunicipalityVS/Sion CHF 50'00024 CHF 70'000185 CHF 90'000463 CHF 120'000731
Canton/MunicipalityZG/Zug CHF 50'0000 CHF 70'0000 CHF 90'000105 CHF 120'000215
Canton/MunicipalityZH/Zürich CHF 50'0000 CHF 70'000282 CHF 90'000429 CHF 120'000743

*Taxable income per annum in CHF

2. SAVE TAX WHEN PILLAR 3A IS PAID OUT

Advantage 1: Taxation at the reduced rate

When your pillar 3a assets are paid out, you must pay tax on them. The tax rate varies from canton to canton, but tax is charged separately from usual income such as wages, pensions, income from investments, etc. in every canton. This is also the case with direct federal tax. The withdrawal is taxed at one-fifth of the income tax rate.

 

Advantage 2: Save through staggered withdrawals

You can have your 3a balance paid out at the earliest five years before the regular AHV retirement age. Women at 59, men at 60. If you work beyond retirement age, you may still pay into pillar 3a for a maximum of five years after reaching regular retirement age. That means up to age 69 for women and up to age 70 for men.

 

Each pillar 3a account must be dissolved in its entirety. Hence you should consider having several pillar 3a solutions right from the start. This will allow you to draw assets on a staggered basis over the years so you do not end up paying higher rates of tax under the progressive tax system (disproportionate tax charge on each additional taxable franc from pension plan 3a).

 

When you plan, take into account other balances to be paid out:

  • Your spouse’s pension scheme (PK/3a)
  • Your lump-sum withdrawal from your pension fund (PK)
  • Money in a vested benefits account

 

Why is this so important?

 

An example from the canton of Aargau:

There is CHF 480,000 in the pension fund and CHF 120,000 in pillar 3a. 
 

If you pay tax on the pension fund, it will cost you around CHF 36,000. If you defer withdrawing your pillar 3a assets to the following year, you will pay tax of around CHF 4,700. If you were to have both paid out in the same year, you would pay around CHF 6,000 more in tax.

 

What is the situation in other cantons?

Here, too, our calculation is based on retirement assets totalling CHF 600,000:
Pension fund CHF 480,000 and pillar 3 CHF 120,000.

 

Calculation basis: Married tax rate and without church tax. Rounded to CHF 100.

 

Place (canton)Aarau (AG) Pension fund CHF 480,00036'000 Pillar 3a CHF 120,0004'700 Tax burden staggered in CHF40'700 Tax burden not staggered in CHF46'700
Place (canton)Altdorf (UR) Pension fund CHF 480,00027,800 Pillar 3a CHF 120,0005,100 Tax burden staggered in CHF32,900 Tax burden not staggered in CHF35,400
Place (canton)Appenzell (AI) Pension fund CHF 480,00026,400 Pillar 3a CHF 120,0003,900 Tax burden staggered in CHF30,300 Tax burden not staggered in CHF33,700
Place (canton)Basel (BS) Pension fund CHF 480,00044,900 Pillar 3a CHF 120,0007,000 Tax burden staggered in CHF51,900 Tax burden not staggered in CHF57,700
Place (canton)Bellinzona (TI) Pension fund CHF 480,00028,500 Pillar 3a CHF 120,0005,300 Tax burden staggered in CHF33,800 Tax burden not staggered in CHF36,300
Place (canton)Bern (BE) Pension fund CHF 480,00036,700 Pillar 3a CHF 120,0005,200 Tax burden staggered in CHF41,900 Tax burden not staggered in CHF49,100
Place (canton)Chur (GR) Pension fund CHF 480,00023,500 Pillar 3a CHF 120,0004,100 Tax burden staggered in CHF27,600 Tax burden not staggered in CHF30,000
Place (canton)Delémont (JU) Pension fund CHF 480,00037,900 Pillar 3a CHF 120,00006,500 Tax burden staggered in CHF44,400 Tax burden not staggered in CHF48,400
Place (canton)Frauenfeld (TG) Pension fund CHF 480,00035,000 Pillar 3a CHF 120,0006,900 Tax burden staggered in CHF41,900 Tax burden not staggered in CHF44,500
Place (canton)Fribourg (FR) Pension fund CHF 480,00053,600 Pillar 3a CHF 120,0006,800 Tax burden staggered in CHF60,400 Tax burden not staggered in CHF69,800
Place (canton)Genève (GE) Pension fund CHF 480,00034,200 Pillar 3a CHF 120,0004,500 Tax burden staggered in CHF38,700 Tax burden not staggered in CHF44,700
Place (canton)Glarus (GL) Pension fund CHF 480,00032,400 Pillar 3a CHF 120,0006,300 Tax burden staggered in CHF38,700 Tax burden not staggered in CHF41,200
Place (canton)Herisau (AR) Pension fund CHF 480,00037,500 Pillar 3a CHF 120,0007,200 Tax burden staggered in CHF44,700 Tax burden not staggered in CHF49,400
Place (canton)Lausanne (VD) Pension fund CHF 480,00054,300 Pillar 3a CHF 120,0007,800 Tax burden staggered in CHF62,100 Tax burden not staggered in CHF71,900
Place (canton)Liestal (BL) Pension fund CHF 480,00030,900 Pillar 3a CHF 120,0004,600 Tax burden staggered in CHF35,500 Tax burden not staggered in CHF45,900
Place (canton)Luzern (LU) Pension fund CHF 480,00038,700 Pillar 3a CHF 120,0005,700 Tax burden staggered in CHF44,400 Tax burden not staggered in CHF49,900

Generali tip

From around CHF 60,000 to 80,000, it is worthwhile investing in a new pillar 3a solution since tax progression begins from this amount. You should also avoid drawing on pillars 2 and 3 in the same year. In this way, you can make further tax savings, as the table and the example above show.

 

 

A possible withdrawal plan could look like this:

 

 

 

OUR CONCLUSION

With pillar 3a you can easily save tax. You only have to be aware of a few tips and tricks. Calculated over a period of 30 years, with the optimum pension and savings solution you could enough to pay for a family holiday or even a car.

“Every year in which you do not have a pillar 3a account and therefore do not save tax is a lost year. Retroactive deposits are not possible. Our experts will find the optimum pension plan for you, so you can make considerable tax savings.”

 

Marco Palermo, Agency Manager Generali Bern.

Employed as a state-certified financial planner since 2009. 

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