Your Pillar 3 is the voluntary, private pension savings plan that allows you to top up your retirement income and enjoy some tax benefits along the way.
Whilst having a Pillar 3 account is often a good idea, it is not mandatory like the Pillar 1 and 2 are.
The Pillar 3 is divided into two categories: the Pillar 3a and Pillar 3b.
Pillar 3a is the tax-advantaged account.
Contributions to a Pillar 3a account are tax-deductible up to a certain limit, which is a nice way to reduce your taxable income.
However, there are restrictions on when and how you can access these funds — you typically can’t withdraw them until you’re close to retirement age, unless under specific conditions like buying a home, starting a business, or permanently leaving Switzerland.
Furthermore, when you withdraw from a Pillar 3a account, you must receive the value of the account in full.
This is why it is sometimes a good idea to have more than one Pillar 3a account once your initial account reaches a certain value.
Pillar 3b is an umbrella term that covers any private savings or investments you may hold outside of the Pillar 1, 2, or 3a system.
However, in cantons such as Geneva and Fribourg there are some products called Pillar 3b, too, that are often offered by banks.
This can cause confusion over what a Pillar 3b is, and whether you need the ‘product’ Pillar 3b.
The product named ‘Pillar 3b’ is generally not suitable for most people, though your individual circumstances may impact this.
If you are offered the product Pillar 3b, be wary and make sure to read the contract in full, as it is often linked to life assurance with minimum terms and can lock away your capital.
A Pillar 3a account is a good idea to try and fill any potential gaps that you may have in income during retirement should your Pillar 1 and Pillar 2 not provide enough.
Pillar 3b, as the umbrella term covering any other private savings is also a good idea, as you should always keep your own savings and investments outside of these systems if possible.
Pillar 3a’s often provide far more flexibility in investment choices than your Pillar 2 or Vested Benefits account which can give you the opportunity for enhanced returns.
Moreover, if you decide to leave Switzerland, it is often more simple to take your Pillar 3a funds with you than it can be with your Pillar 1 or Pillar 2.