3rd pillar glossary
Find here all the definitions of essential terms related to the 3rd pillar and Swiss pension planning. This glossary helps you better understand the key concepts for making the right choices in individual pension planning.
AHV (Old-age and survivors' insurance)
The 1st pillar of the Swiss pension system, funded on a pay-as-you-go basis. AHV guarantees a basic income at retirement, in case of death or disability. Contributions are mandatory for all persons residing or working in Switzerland from the age of 20.
LPP (Occupational Pensions Act)
The 2nd pillar of Swiss pension planning, also called occupational pension. LPP is mandatory for employees whose annual income exceeds the entry threshold (approximately CHF 22,050). It aims to maintain the usual standard of living at retirement, supplementing AHV.
Pillar 3a
Tied individual pension savings, allowing you to build retirement savings while benefiting from significant tax advantages. Contributions are deductible from taxable income up to an annual ceiling set by law. The capital is locked until 5 years before retirement age, except for legal exceptions.
Pillar 3b
Free individual pension savings, with no contribution ceiling or capital lock-up. Unlike pillar 3a, pillar 3b offers great flexibility but more limited tax advantages. It encompasses all forms of savings and investments freely chosen by the individual.
Marginal tax rate
The tax rate applied to the last bracket of your taxable income. This is the rate that determines the actual tax saving obtained through pillar 3a deductions. The higher your marginal rate, the greater the tax advantage of a 3rd pillar contribution.
Tax deduction
The amount you can subtract from your taxable income when filing your tax return. Pillar 3a contributions are fully deductible from taxable income, which directly reduces the amount of your taxes. The actual saving depends on your marginal tax rate.
3a ceiling
The maximum amount authorized for annual contributions to pillar 3a, set each year by the Federal Council. For employees affiliated with a 2nd pillar, the ceiling is CHF 7,258 in 2026. For self-employed persons without a 2nd pillar, it is 20% of net income, with a maximum of CHF 36,288.
Tied pension savings
Term designating pillar 3a, whose conditions are set by law. Funds are tied to a pension objective and can only be withdrawn in specific cases (retirement, property purchase, departure from Switzerland, self-employment). In return, the tax advantages are significant.
Free pension savings
Term designating pillar 3b, offering total freedom in the choice of products and amounts invested. No legal restriction applies to capital withdrawal. Tax advantages vary by canton and type of product chosen (life insurance, investment funds, etc.).
EPL (Home ownership promotion)
Legal mechanism allowing the use of 2nd and 3rd pillar assets to finance the purchase of your primary residence. EPL authorizes early withdrawal or pledging of pension funds. It is one of the most frequently used legal reasons for early withdrawal of pillar 3a in Switzerland.
Retroactive buy-back
Possibility introduced in 2025 to catch up on years when you did not contribute the maximum amount to pillar 3a. The retroactive buy-back is limited to years from 2025 onward and capped at the annual maximum amount in effect. This measure allows you to fill pension gaps while benefiting from tax advantages.
Surrender value
The amount you would receive if you cancel your 3rd pillar life insurance contract before its maturity. The surrender value is generally lower than the premiums paid during the first years of the contract. It gradually increases with time and accumulated interest.
Pledging
The use of your 3rd pillar assets as security for a mortgage loan, without withdrawing the capital. Pledging allows you to maintain pension coverage while improving real estate financing conditions. The funds remain invested and continue to generate returns.
Vested benefits
The transfer of your pension assets from one institution to another when changing employer or during a break in employment. A vested benefits account preserves your acquired pension rights. It is also used when transferring a pillar 3a from one bank or insurance company to another.
Life annuity
A regular income paid for life to the beneficiary, generally from retirement onward. Some 3rd pillar products allow converting the accumulated capital into a life annuity. This option guarantees a stable income but means the capital will not be passed on to heirs at death.
Death capital
The amount paid to designated beneficiaries in case of the insured person's death. In the context of an insurance 3rd pillar, the death capital is guaranteed and may exceed the amount saved. It is an essential tool for the financial protection of the family, particularly for couples with children or property owners.
Return
The gain generated by your 3rd pillar investment, expressed as an annual percentage. Returns vary considerably depending on the type of product chosen: bank account, life insurance, investment funds or ETFs. A higher return generally comes with greater risk, hence the importance of diversifying your investments.
AHV (Old-age and survivors' insurance)
The 1st pillar of the Swiss pension system, funded on a pay-as-you-go basis. AHV guarantees a basic income at retirement, in case of death or disability. Contributions are mandatory for all persons residing or working in Switzerland from the age of 20.
LPP (Occupational Pensions Act)
The 2nd pillar of Swiss pension planning, also called occupational pension. LPP is mandatory for employees whose annual income exceeds the entry threshold (approximately CHF 22,050). It aims to maintain the usual standard of living at retirement, supplementing AHV.
Pillar 3a
Tied individual pension savings, allowing you to build retirement savings while benefiting from significant tax advantages. Contributions are deductible from taxable income up to an annual ceiling set by law. The capital is locked until 5 years before retirement age, except for legal exceptions.
Pillar 3b
Free individual pension savings, with no contribution ceiling or capital lock-up. Unlike pillar 3a, pillar 3b offers great flexibility but more limited tax advantages. It encompasses all forms of savings and investments freely chosen by the individual.
Marginal tax rate
The tax rate applied to the last bracket of your taxable income. This is the rate that determines the actual tax saving obtained through pillar 3a deductions. The higher your marginal rate, the greater the tax advantage of a 3rd pillar contribution.
Tax deduction
The amount you can subtract from your taxable income when filing your tax return. Pillar 3a contributions are fully deductible from taxable income, which directly reduces the amount of your taxes. The actual saving depends on your marginal tax rate.
3a ceiling
The maximum amount authorized for annual contributions to pillar 3a, set each year by the Federal Council. For employees affiliated with a 2nd pillar, the ceiling is CHF 7,258 in 2026. For self-employed persons without a 2nd pillar, it is 20% of net income, with a maximum of CHF 36,288.
Tied pension savings
Term designating pillar 3a, whose conditions are set by law. Funds are tied to a pension objective and can only be withdrawn in specific cases (retirement, property purchase, departure from Switzerland, self-employment). In return, the tax advantages are significant.
Free pension savings
Term designating pillar 3b, offering total freedom in the choice of products and amounts invested. No legal restriction applies to capital withdrawal. Tax advantages vary by canton and type of product chosen (life insurance, investment funds, etc.).
EPL (Home ownership promotion)
Legal mechanism allowing the use of 2nd and 3rd pillar assets to finance the purchase of your primary residence. EPL authorizes early withdrawal or pledging of pension funds. It is one of the most frequently used legal reasons for early withdrawal of pillar 3a in Switzerland.
Retroactive buy-back
Possibility introduced in 2025 to catch up on years when you did not contribute the maximum amount to pillar 3a. The retroactive buy-back is limited to years from 2025 onward and capped at the annual maximum amount in effect. This measure allows you to fill pension gaps while benefiting from tax advantages.
Surrender value
The amount you would receive if you cancel your 3rd pillar life insurance contract before its maturity. The surrender value is generally lower than the premiums paid during the first years of the contract. It gradually increases with time and accumulated interest.
Pledging
The use of your 3rd pillar assets as security for a mortgage loan, without withdrawing the capital. Pledging allows you to maintain pension coverage while improving real estate financing conditions. The funds remain invested and continue to generate returns.
Vested benefits
The transfer of your pension assets from one institution to another when changing employer or during a break in employment. A vested benefits account preserves your acquired pension rights. It is also used when transferring a pillar 3a from one bank or insurance company to another.
Life annuity
A regular income paid for life to the beneficiary, generally from retirement onward. Some 3rd pillar products allow converting the accumulated capital into a life annuity. This option guarantees a stable income but means the capital will not be passed on to heirs at death.
Death capital
The amount paid to designated beneficiaries in case of the insured person's death. In the context of an insurance 3rd pillar, the death capital is guaranteed and may exceed the amount saved. It is an essential tool for the financial protection of the family, particularly for couples with children or property owners.
Return
The gain generated by your 3rd pillar investment, expressed as an annual percentage. Returns vary considerably depending on the type of product chosen: bank account, life insurance, investment funds or ETFs. A higher return generally comes with greater risk, hence the importance of diversifying your investments.