The 3rd pillar in Switzerland: the key to financial freedom in retirement

Switzerland’s pension system is based on three pillars: state pension (AHV/IV), occupational pension (pension fund), and private pension (3rd pillar).

Did you know that the first and second pillars combined typically cover only about 60% of your last income before retirement? This creates a significant pension gap for many Swiss residents. To maintain your standard of living in retirement, private pension planning is essential.

Strengthening this third pillar is in your hands and can have a major impact on your financial situation in retirement.

What is Switzerland’s 3rd pillar?

The 3rd pillar is your voluntary private pension plan, designed to supplement your state pension (AHV/IV) and occupational pension (pension fund). Unlike the first two pillars, you decide whether and how much you want to invest in the 3rd pillar.

You have two options:

• Tied pension plan (pillar 3a) offers attractive tax benefits, but the funds are restricted and generally locked until retirement. Only individuals with AHV-liable income can contribute to pillar 3a.

• Flexible pension plan (pillar 3b) provides maximum flexibility and is open to everyone. You can access your capital at any time, but it does not offer specific tax advantages.

By combining pillars 3a and 3b, you can tailor your private pension plan to your needs – either with tax benefits and long-term commitment or with full flexibility but no tax privileges.

New from 2025: back payments now possible

From 2025, you will be able to make back payments into your pillar 3a for the first time. This new rule allows you to use unused contribution limits from previous years retroactively. It is particularly beneficial for individuals with irregular incomes or career breaks. This way, you can close pension gaps and take advantage of additional tax benefits.

Differences between pillar 3a and 3b

The two private pension options differ significantly in terms of flexibility, taxation, and contribution limits. Here’s an overview of the key differences:

Maximum contributions

• Pillar 3a: In 2025, employees with a pension fund can contribute up to 7,258 CHF. Self-employed individuals without a pension fund can contribute up to 20% of their net income, with a maximum of 36,288 CHF for 2025. These limits are set by the government and may increase periodically.

• Pillar 3b: There are no limits – ideal if you want to save beyond the 3a cap.

Capital availability

• Pillar 3a: Funds are locked until retirement, with early withdrawals permitted only under specific conditions, such as buying residential property, permanent emigration from Switzerland, starting self-employment, or disability.

• Pillar 3b: You can access your capital at any time without restrictions.

Tax advantages

• Pillar 3a: Offers clear tax benefits. Contributions are deductible from taxable income, and earnings remain tax-free during the investment period. A one-time reduced capital tax is applied upon withdrawal.

• Pillar 3b: No direct tax deductions. Contributions are not tax-deductible, and savings (including interest or returns) must be declared and taxed annually. However, withdrawals are tax-free since the capital has already been taxed over time.

Make the most of the 3rd pillar’s tax benefits

Pillar 3a offers significant tax advantages. Every franc you contribute directly reduces your taxable income.

Additionally, your savings grow tax-free: no wealth or income tax applies during the investment period, amplifying the compound interest effect. Although withdrawals are taxed, they are subject to a significantly reduced rate.

For 2025, the maximum contribution limits have increased: employees can deduct up to 7,258 CHF, while self-employed individuals without a pension fund can deduct up to 36,288 CHF (or 20% of their income). Maximising your contributions optimises your tax benefits.

Strategies for maximising tax advantages:

• Contribute early: The earlier you invest, the longer your savings can generate returns. Ensure your contribution is processed by 31 December to count for the current tax year.

• Open multiple 3a accounts: Since you must withdraw the entire balance of a 3a account at once, spreading funds across multiple accounts allows for staggered withdrawals, reducing tax spikes.

• Consider cantonal tax differences: Tax rates for 3a withdrawals vary by canton. If you plan to relocate, check the tax implications in your new canton.

By following these strategies, you can save on taxes every year while growing your retirement capital. Use the advantages of the 3rd pillar wisely for a financially secure future.

Choosing the right investment strategy for your 3rd pillar

Beyond tax benefits, your investment strategy plays a crucial role in the success of your private pension plan. You have three main options for pillar 3a:

• 3a savings account: Works like a regular savings account, offering security without market risks. However, interest rates are often below inflation, eroding purchasing power over time.

• 3a investment fund: Invests your savings in shares, bonds, or real estate funds. Higher returns are possible in the long run, though with market fluctuations. Both banks and digital providers offer various risk profiles, from conservative to dynamic.

• 3a life insurance: Combines savings with insurance coverage (e.g., for death or disability). It ensures automatic, regular savings with additional protection but has lower flexibility and returns due to insurance costs.

For pillar 3b, the full range of investment options is available – from securities and real estate to alternative assets. Since retirement planning is long-term, align your investment strategy with your time horizon. The goal: returns above inflation to preserve and grow your capital.

For optimal results, start early, contribute regularly, and select an investment profile that suits your age and risk tolerance. If investing in funds, take advantage of cost averaging.

Conclusion: financial security in retirement with the 3rd pillar

Switzerland’s 3rd pillar offers powerful tools for retirement planning. Leverage the tax benefits of pillar 3a and complement it with the flexibility of pillar 3b if needed. The earlier you start and the more strategically you plan your contributions and investments, the stronger your financial foundation will be in retirement. Invest in your future today – your financial freedom will thank you later.