Pillar 3a or 3b: which choice for your situation?

Pillar 3a or pillar 3b? This is a question many Swiss residents ask when planning their pension provision. The answer depends on your personal situation, objectives and savings capacity. This comparative guide helps you make the right choice.

Reminder: what are pillar 3a and pillar 3b?

Pillar 3a (tied pension planning) and pillar 3b (flexible pension planning) are the two components of the Swiss 3rd pillar. They share the same objective -- building individual retirement savings -- but differ in their rules, tax advantages and flexibility.

Complete comparison table: 3a vs 3b

Advantages of pillar 3a

Pillar 3a has major strengths that make it the priority for most savers:

• Maximum tax savings: every franc contributed directly reduces your taxable income. At a marginal rate of 35%, contributing CHF 7 258.- generates a tax saving of over CHF 2,500.- per year.
• Wealth tax exemption: accumulated capital is not counted in your taxable wealth, unlike a regular savings account.
• No tax on capital income: interest, dividends and capital gains are not taxed as long as the capital remains in pillar 3a.
• Savings discipline: the capital lock-in prevents you from dipping into your retirement savings for current expenses.

Advantages of pillar 3b

Pillar 3b addresses different needs:

• No contribution limit: ideal for high earners who have already reached the 3a limit and wish to save more.
• Total liquidity: you access your capital whenever you wish, without justification.
• Free choice of beneficiaries: you designate whoever you want as beneficiary in case of death.
• Open to all: no gainful activity required to contribute.
• Estate planning tool: 3b life insurance allows you to transfer capital outside the estate.

Recommendations by profile

Employee with average income

Priority: pillar 3a. Focus your efforts on the maximum contribution to 3a. The tax saving is your best "guaranteed return". If your budget allows, open a supplementary 3b for more flexibility.

Employee with high income

Combine 3a and 3b. Contribute the maximum to 3a, then invest the surplus in a 3b (life insurance or investment fund). Your high marginal rate makes 3a extremely advantageous, and 3b allows you to continue building capital.

Self-employed without 2nd pillar

Absolute priority: pillar 3a with increased limit. With a limit of CHF 36 288.- per year, pillar 3a is your main pension and tax optimisation tool. The guide for the self-employed details specific strategies.

Person without gainful activity

Pillar 3b only. Without access to pillar 3a, 3b is your only 3rd pillar option. Favour a life insurance with risk coverage to combine savings and protection.

Young professional at the start of their career

Pillar 3a as a priority, even with small amounts. Starting early maximises the effect of compound interest. Even CHF 200.- per month in 3a is an excellent start. As your income increases, aim for the 3a maximum then add a 3b.

Unmarried couple

3a + 3b with life insurance. Pillar 3a does not allow you to freely designate your partner as beneficiary. A 3b in the form of life insurance allows you to protect your cohabiting partner in case of death.

The ideal approach: the combined strategy

For the vast majority of situations, the best strategy consists of combining 3a and 3b:

1. Step 1: contribute the maximum amount to your pillar 3a each year (CHF 7 258.- for employees)
2. Step 2: spread your 3a contributions across multiple accounts to optimise withdrawal
3. Step 3: if your savings capacity allows, open a pillar 3b for the surplus
4. Step 4: adapt the equity/bond allocation to your investment horizon

Still undecided? Request a personalised quote and our advisors will guide you to the optimal solution for your situation.