Swiss pillar 3a is a category of private retirement savings with a tax privilege. Your contributions are tax deductible, and a 3a Pillar Swiss pension scheme has the most tax benefits compared with other retirement schemes. The reason for this is because it is very difficult to remove your money from your 3A savings, whereas it is slightly easier to remove money from things such as your 3b pillar plan.
Contributions to your 3a retirement account, your 3a life insurance policy, your 3a retirement fund, or your 3a investment account are tax deductible. How much of your investment is tax deductible depends upon the limits set by the Swiss federal government.
When Can Your Funds Be Accessed?
You may access your 3a assets at retirement age, or you may access them five years before you reach your legal retirement age. Five years before your legal retirement age is the earliest you are able to access and withdraw your money, however, there are circumstances upon which you may gain access to your money a little earlier. If you would like to leave your money in for a little longer, then you may continue adding to your Swiss pension scheme up to five years after your legal retirement age.
When Am I Allowed to Withdraw Money From My 3a Contributions?
You are able to withdraw your money five years before you reach your legal retirement age, which is also known as your AHV retirement age. However, you may also withdraw your money under these circumstances:
- Become self-employed and they allow you to apply to withdraw your 3a contributions
- Build or buy a home that becomes your primary place of residence
- Buy into a Pillar 2 pension fund
- Pay off a mortgage for a residential property that is currently your primary residence
- Leave Switzerland permanently
- Draw a 100% benefit from the Swiss Federal Invalidity Insurance where the invalidity risk is not insured
How Do I Save On Taxes When I Have to Pay Tax Upon Withdrawal?
One of the biggest problems many people have with pillar 3a pension planning is that their money is taxed when it is withdrawn, which makes Pillar 3a seem more like a tax deferment scheme rather than a tax-exempt scheme. You do pay tax on your withdrawal, but you also save on taxes in several different ways during the course of your pension scheme. Here are the four biggest ways that you will save on taxes thanks to Pillar 3a pension planning.
1. Payouts Are Taxed Separately – Let's say that you have 100CHF from your salary, and it's taxed at the regular rate. As an alternative, let's say that the 100CHF is put into a 3a Pillar scheme so that it is not taxed for years. Eventually, when you are paid out, you have to pay tax on the CHF100, but this is taxed separately from your regular income, and it is taxed at a lower rate than if it were deemed as regular income.
2. It May Save You from Paying A Higher Tax Band Rate – Let's say that your income has increased enough to move you from your current tax band to a higher band. You might deposit just enough money into your retirement fund and keep your taxable income lower than the higher band threshold. If you deposit money into your Pillar 3a retirement fund, not only will you avoid a higher tax band, but you won't have to pay tax on it for many years, (tax is deferred until you withdraw the retirement funds).
3. Interest Earned Is Tax-Free – You could pay tax on your 100CHF and then put it in a savings account. You earn interest, and that interest is also taxed. Alternatively, you could put your $100 into your retirement savings and not pay tax on it for years. Plus, the years the 100CHF is in your retirement fund, you're earning interest, and your interest is not taxed.
4. Avoid Wealth Tax For A While – The capital you save up in your Pillar 3a retirement fund is exempt from wealth tax. You will have to pay wealth tax when the money is withdrawn, but you save on wealth tax all the way up until the money is withdrawn.
What Is the Maximum Pillar 3a Amount?
The money you deposit into your 3a retirement scheme is money that you may deduct from your taxable income, which means you save money on taxes both in the moment and in the future. However, there are limits to how much money you may put in to your retirement fund.
The UBS sets the limit, and the current limit for 2019 is 6826 Swiss francs per year for people with a pension fund. Without a pension fund, the amount is 34,128 Swiss francs or a maximum 20% of net income.
Should I Add A Third Pillar To My Foundation?
Look at the entire pension landscape to get an idea of why you should invest in a Pillar 3a scheme. You have your AHV pension, which is going to pay you a modest amount in an era where modest may simply not be good enough. We do not know if you will need to buy petrol and utilities at 900% inflated prices, or if there will be a clean-water tax or whatever else our future has to offer.
You also have your occupational pension fund, which would be fine except that people are living longer and longer. We may be living in an era where even the soil in your backyard can give you cancer, but we are also living in an age where medical science can bring people back from the brink of death and give them a full and very long life. People are living longer because medicine has advanced so quickly, which means occupational funds need to be paid for longer and longer. Considering these two options, it is no wonder why people are opting for Swiss pillar 3a private retirement savings.
Why Are Expats Investing in Pillar 3a Schemes?
Some expats ask why they should invest in a Pillar 3a retirement plan, and the answer would seem fairly obvious. If you have just entered Switzerland, you are probably years and years behind other people in terms of your pension fund. You have had less time for your AHV pension and your occupational pension, so it makes sense that you use a Pillar 3a scheme as a way to improve your overall pension. A voluntary retirement fund with these types of tax benefits is a perfect and non-laborious way to ensure you have a full and robust pension amount when you retire.
When Do Most People Start Investing in Their Pillar 3a Pension Plan?
As with life insurance policies, it is always better to start paying into your pension plans as early as possible. However, circumstances usually dictate that a person starts investing after they are 30 years old.
For example, people who are in their 30s tend to have finished paying their student loans and so reallocate that money into their investments and retirement funds. People who are 30 or above also tend to have better jobs where they have a bit extra to put away for their future. Finally, people who are 30 or above tend to be in situations that are a little more stable and secure so that they can start thinking about a richer retirement fund. In a traditional and logical sense, it is better to start investing in Pillar 3a sooner rather than later.
Conclusion – Time to Get A New Retirement Fund?
After deciding that the Pillar 3a scheme is worth contributing to, you should contact Belgravia Wealth Managementand they will help you figure out the most efficient ways to make contributions. You do not have to be a lifetime citizen of Switzerland in order to qualify, especially since the Swiss pillar 3a pension plan is popular with expats from Europe who have decided to live in Switzerland