Optimize Your Retirement Provision and Save on Taxes

Voluntary contributions to a pension fund and targeted contributions to Pillar 3a can not only improve your financial planning but also reduce your tax burden. Early planning and the right strategy are crucial. The following section outlines the available options and highlights key considerations.

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Just as with a pension fund, you can save retirement capital with tax advantages in Pillar 3a. Pillar 3a is available to all working individuals who report income subject to OASI contributions and to those receiving daily benefits from unemployment insurance. If an insurance plan is chosen, the risks of death and disability can be insured separately or combined with a savings component.

Anyone who is a member of a pension fund may currently contribute a maximum of 7,258 francs annually. Those who are not members of a pension fund (e.g., self-employed individuals), you may contribute 20 percent of your earned income annually to Pillar 3a, up to a maximum of 36,288 francs.

Multiple accounts are permitted. This makes sense so that withdrawals can be staggered and the tax rate can be reduced. In the canton of Lucerne, it is recommended to open a new retirement savings account for amounts ranging from approximately 40,000 to 50,000 Swiss francs. In other cantons, this threshold may vary. Existing balances in a retirement savings account cannot be split retroactively to benefit from the reduction in the tax progression upon withdrawal.

A contribution made in the same year in which a withdrawal from Pillar 3a is made is tax-deductible, provided there is earned income subject to OASI.

Contributions to Pillar 3a may be made until the person ceases gainful employment, but no later than age 70. The tax-free allowance for OASI old-age pensioners of 16,800 Swiss francs per year is considered income subject to OASI contributions. It is permitted to contribute the full amount in the year of retirement (provided it does not exceed your income) and then withdraw it in the same year.

3a retirement savings can be withdrawn early for the following reasons:

-           Receipt of a full disability pension from the Swiss Federal Disability Insurance, provided the risk of disability is not otherwise insured.

-           For tax-neutral contributions to a pension fund or another recognized

pension plan.

-           When starting self-employment.

-           For the purchase or construction of a home for personal use.

-           Homeownership for personal use.

-           Repayment of mortgage loans on owner-occupied properties (can be claimed every five years).

Withdrawal of Pillar 3a retirement savings is possible starting at age 60. The funds (always the entire pension account or pension policy in a single lump sum) must be withdrawn by the time the standard retirement age of 65 is reached. If you continue to work beyond the standard retirement age, you may defer the withdrawal until you cease working, but no later than age 70. All pension funds received by a married couple in the same year are combined and taxed separately from income at a reduced rate.

Effective January 1, 2025, the Federal Council introduced the option of retroactive contributions to Pillar 3a. Thanks to the new regulation, contribution gaps from the past ten years can be closed through retroactive contributions to Pillar 3a. These contributions are tax-deductible and are made in addition to the regular annual contributions.

A contribution gap results from the difference between the permitted annual contribution and the amount actually paid in. A prerequisite for making contributions to Pillar 3a is having income from gainful employment in Switzerland that is subject to OASI. If there is no income subject to OASI in a given year, no contribution gap arises in that year, since the allowable annual contribution is zero francs.

The maximum annual purchase amount is limited to the amount of the “small” Pillar 3a, which is currently 7,258 francs. This also applies to self-employed individuals.

A gap in annual contributions can only be closed through a one-time lump-sum purchase. A single annual contribution gap cannot be closed by multiple annual contributions. However, several (small) annual contribution gaps can be closed with a single lump-sum contribution.

Unlike the regular annual contribution, a lump-sum purchase into Pillar 3a must first be requested from the pension fund. If the requirements for a buy-in are met, the pension fund will approve the buy-in. Since the administrative process takes some time, it is important to act in a timely manner.

How the buy-in works

1.         Check for contribution gaps: Calculate the difference between the potential contributions and the actual contributions made over the last ten years.

2.         Apply for a buy-in: Contact the bank foundation or insurance provider and submit the application. A written application specifying the years for which a buy-in is to be made is required.

3.         Take advantage of tax benefits: A purchase reduces taxable income.

Important restrictions

•           Purchases are only possible if the current annual premium has been paid in full.

•           Receiving retirement benefits from Pillar 3a precludes subsequent contributions.

•           Contribution gaps prior to 2025 cannot be closed.

A retroactive contribution to Pillar 3a is therefore possible no earlier than 2026 (to close the 2025 contribution gap).

Tax Planning Measures

In certain life situations, it may make sense from a tax planning perspective to intentionally create a contribution gap and later make a catch-up contribution to Pillar 3a. For example, if you are about to move to a municipality or canton with a higher tax rate. In addition, you can benefit from the progressive tax effect if your taxable income in the coming year is significantly higher than in the current year. This can be the case for various reasons, such as Education, unpaid leave, major property maintenance, or an increase in workload. The tax implications must be assessed on a case-by-case basis. However, due to the maximum annual contribution limit of 7,258 francs (as of 2026), the tax savings are limited.