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 deposits | Amount |
---|---|
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/Municipality | CHF 50,000* | CHF 70,000* | CHF 90,000* | CHF 120,000* |
---|---|---|---|---|
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) | Pension fund CHF 480,000 |
Pillar 3a CHF 120,000 |
Tax burden staggered in CHF |
Tax burden not staggered in CHF |
---|---|---|---|---|
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.