Flexible retirement planning with Pillar 3b: options and benefits

Switzerland’s pension system is based on three pillars. The first two – state pension (1st pillar) and occupational pension (2nd pillar) – are mandatory. The 3rd pillar, however, is voluntary. Despite this, it is widely used: according to the Swiss Federal Statistical Office, nearly two-thirds of employed individuals in Switzerland have a 3rd pillar account.

The 3rd pillar is a personal savings scheme designed to build wealth for retirement and consists of two main forms: Pillar 3a and Pillar 3b. The latter, also known as unrestricted pension provision, is an ideal solution for those seeking greater flexibility beyond the tied Pillar 3a option.

In this article, we explain how Pillar 3b works, how it differs from Pillar 3a, the benefits it offers for your retirement, and the investment options that could be particularly attractive in 2025.

What is Pillar 3b and how does it work?

Pillar 3b is part of Switzerland’s 3rd pillar pension system, alongside Pillar 3a. Unlike Pillar 3a, which has strict conditions – generally allowing withdrawals only five years before reaching AHV retirement age or in specific cases (such as buying a home, emigrating, or becoming self-employed) – Pillar 3b offers much greater flexibility. You can contribute funds at any time, with no annual limit.

Withdrawals are also unrestricted, as Pillar 3b has no lock-in period. For instance, if you wish to retire at 58 and travel the world, you can use your Pillar 3b savings to fund your journey. It also allows for larger or irregular contributions, such as when receiving a bonus or an inheritance.

The benefits of Pillar 3b for your retirement

As an unrestricted pension scheme, Pillar 3b offers several advantages for wealth accumulation and financial security in retirement. Compared to Pillar 3a, it prioritises flexibility and personalisation. Here are its key benefits:

• Flexible use and access: Your Pillar 3b savings are not locked until retirement. You can access them at any time and decide how to use your funds – whether for retirement planning, buying a home, or fulfilling personal goals. This accessibility provides financial freedom at different life stages.

• No contribution limits: Unlike Pillar 3a, Pillar 3b does not impose a cap on contributions. You can save as much as you like, depending on your financial situation. This makes it ideal if you want to go beyond Pillar 3a’s maximum limits or invest irregular income.

• Free choice of beneficiaries: In unrestricted pension planning, you decide who inherits your savings in the event of your passing. Beneficiaries can include your spouse, children, an unmarried partner, or any third party of your choice.

• Tax advantages on withdrawals: Although contributions to Pillar 3b are not tax-deductible, certain products still offer tax benefits. For example, payouts from Pillar 3b life insurance policies are typically tax-free if certain conditions are met.

In short, Pillar 3b is a flexible and adaptable retirement solution. While it does not provide immediate tax deductions, it offers complete freedom regarding contributions, investments, withdrawals, and beneficiary selection – essential aspects for tailoring your retirement plan to your specific needs.

Investment strategies for your Pillar 3b

Thanks to its flexibility, Pillar 3b allows access to a wide range of investment options. The best choice depends on your risk appetite, investment horizon, and financial goals. Here are some of the most common options:

• Savings account: A traditional savings account or pension savings account offers high security and instant access to funds. However, interest rates are typically low. This is suitable if you want to avoid risk or need liquidity in the short term, but it may not provide sufficient returns to outpace inflation.

• Bonds: By purchasing bonds, you lend your money in exchange for interest. Bond funds diversify investments and spread risk. Returns are moderate and fluctuate with interest rates. Bonds provide steady income, but changes in interest rates can impact their value.

• Shares and ETFs: Shares offer the highest potential returns over the long term but come with significant market fluctuations. ETFs and equity funds enable broad exposure to stock markets, reducing risk. This type of investment is particularly suitable for younger savers with a long investment horizon. However, it is crucial to be prepared for volatility and market downturns.

• Structured products: These financial instruments combine an underlying investment with a security or leverage mechanism. They offer specific return opportunities or protective features but are more complex and involve issuer risk. Structured products are best suited for experienced investors who understand their mechanics.

• Life insurance (savings insurance): A capital-building life insurance policy combines investment with protection. Part of your premium is saved and earns interest or is invested in funds, while the other part provides insurance coverage (e.g. a death benefit for dependants). These policies often include guaranteed benefits or minimum interest rates with additional surplus participation.

Pillar 3b allows you to invest according to your preferences, whether you prioritise the security of a savings account or seek higher returns through stocks. A well-balanced investment mix tailored to your situation can help you seize market opportunities while maintaining financial stability.

Pillar 3b vs. Pillar 3a: a comparison

Although both Pillar 3a and Pillar 3b share the same goal—enhancing your financial security in retirement—they differ fundamentally:

This comparison highlights the key differences: Pillar 3a offers significant tax benefits but comes with strict regulations. Pillar 3b, on the other hand, provides maximum flexibility but only limited tax advantages. Depending on your personal circumstances, a combination of both pillars is often a smart solution.

Conclusion: a flexible retirement plan with pillar 3b

The third pillar—whether 3a or 3b—is a key instrument for bridging pension gaps between AHV and occupational pensions, ensuring long-term financial security. Pillar 3b is not only suitable for retirement savings but also for other financial goals, such as home ownership or major purchases.

Most working Swiss citizens already have a third-pillar account, primarily in the 3a category. However, if you want to save higher amounts or avoid a rigid withdrawal schedule, Pillar 3b offers an ideal alternative.

Many investors opt for hybrid solutions, leveraging the tax advantages of Pillar 3a while using Pillar 3b to meet their individual flexibility needs. We recommend comprehensive planning that incorporates both pillars. Starting early allows you to benefit from compound interest and market recovery phases.