What is a Pillar 3 pension?
In a nutshell, the Swiss pensions system has three pillars:
Pillar 1: Swiss State Pension. Mandatory. Meant to provide individual and survivors pensions to cover basic needs following retirement.
Pillar 2: Occupational Pensions. Compulsory for all employed individuals. Funded by employer and employee contributions. Intended to provide a ‘comfortable’ income after retirement.
Pillar 3: Optional Pensions. Voluntary. Funded by individual’s contributions. Designed to augment Pillar 1 and 2 pensions with the aim of maintaining the lifestyle you want post-retirement.
There are two types of Pillar 3 pensions:
- Pillar 3a: Tied pensions. Long-term plans. Capital locked into the retirement plan. Annual contributions restricted (With occupational benefits plan: CHF 6,768.00*; Without occupational benefits plan: CHF 33,840* (2017 caps))
- Pillar 3b: Flexible pension plans. No statutorily prescribed term. Capital available at any time. No financing restrictions.
What are the key benefits of a Pillar 3 pension?
While not exhaustive, here are seven key benefits of a Pillar 3 solution.
1. Solution tailored to your needs and goals
Unlike Pillar 1 and 2 pensions, Pillar 3 solutions can be completely tailored to cater to your circumstances. Pillar 3 gives you the opportunity to craft an optimum investment strategy forged around your needs, goals, attitude to risk, investment time frame, and security requirements.
2. Maintaining the lifestyle you want when you retire
For most people, it’s unlikely Pillar 1 and 2 pensions will provide sufficient income during retirement to support the lifestyle they envisage.
Using a Pillar 3 solution helps bridge that gap. None of us knows what the future holds, so it’s becoming increasingly important to explore the advantages offered by Pillar 3 in tailoring a solution that ensures you can afford the lifestyle you want to lead when you retire.
3. Maximising Tax relief
Tax relief is probably the most widely known advantage of contributing to both Pillar 2 and 3 pensions and, no matter how long you intend to stay in Switzerland, maximising tax relief while saving for retirement should be near the top of your to-do list.
Payments made to Pillar 3a plans are tax deductible and payment at maturity is taxed at a reduced rate, making it well worth considering reducing your annual tax bill by paying the maximum you can into a Pillar 3 pension.
4. Security and peace of mind
Pillar 3 insurance solutions focus on protecting your family’s financial future by offering advantages like guaranteed capital at maturity, occupational disability protection, protection for your loved ones if you should die and, by law, payment protection.
There are a considerable variety of insurance products that combine protection with capital growth, can be adapted to suit any lifestyle, and designed to focus on your future.
5. Reducing risk and maximising return
Superior pensions and investment products have evolved over recent years, and those available now enrich the investment experience by offering innovative concepts for minimising risk and enhancing returns. Most include:
- Dynamic capital accumulation with higher return targets
- Investment profiles for any investment strategy
- Planned disbursement
- Capital availability
- Options for a lump sum death payment or occupational disability pension
6. Investment Diversification
When it comes to investment, it’s always a clever idea to mitigate risks from market movements by diversifying; avoiding putting all your eggs in one basket. Using Pillar 3 pensions gives you the opportunity to diversify your investment, so optimising returns, liquidity, capital protection and coverage for risk.
7. Flexibility
Many people think that a signed pension policy can’t be changed until the end of the contract. Many pillar 3 plans, however, can be changed and adapted as your circumstances evolve without any significant disadvantage, so your pension plan grows with you, for you.
In Conclusion
While many international workers understand that maximising tax relief is important, many in Switzerland don’t always use what is available to them or understand the additional benefits or different types of Pillar 3 solutions. You can talk to us about you Pillar 3 requirements and we will provide you with impartial advice.
If you are unsure about your entitlements or would like to talk to someone about setting up or optimising your Pillar 3 pension, please contact us for your free pillar 3 review.
