How many 3rd pillar accounts to open?
Opening just one 3rd pillar account is a common mistake. By spreading your assets across multiple accounts, you can save thousands of francs in taxes at the time of withdrawal. Here is the optimal strategy.
The problem: progressive taxation at withdrawal
When you withdraw your pillar 3a capital, it is taxed separately from your current income, but at a progressive rate. This means the higher the amount withdrawn in a single year, the higher the tax rate.
Moreover, all pension withdrawals made in the same year (3a, 2nd pillar) are combined to determine the tax rate. A large withdrawal can therefore push you into high tax brackets.
Learn more about withdrawal taxation
The solution: splitting across multiple accounts
Each 3a account must be withdrawn in full -- it is not possible to partially withdraw a 3a account. However, you can withdraw your accounts one by one, in different years. By spreading your assets across multiple accounts and staggering withdrawals, each withdrawal remains in low tax brackets.
Worked example: the impact of splitting
Let us take the example of total 3a capital of CHF 300,000.- at the time of retirement, in the Canton of Vaud:
| Strategy | Number of accounts | Withdrawal per year | Estimated total tax |
|---|---|---|---|
| 1 single withdrawal | 1 account | CHF 300'000.- | ~CHF 28'000.- |
| 3 staggered withdrawals | 3 accounts | CHF 100'000.-/year | ~CHF 20'000.- |
| 5 staggered withdrawals | 5 accounts | CHF 60'000.-/year | ~CHF 15'000.- |
Indicative estimates, Canton of Vaud, single person. Actual tax varies by municipality and family situation.
In this example, simply going from 1 to 5 accounts saves approximately CHF 13,000.- in taxes. This is a substantial gain achieved through simple planning.
How many accounts to open?
Recommendation for employees: 3 to 5 accounts
With a limit of CHF 7 258.- per year, most employees accumulate between CHF 200,000.- and CHF 400,000.- over their career. In this range, 3 to 5 accounts allow optimal staggering:
- 3 accounts: the recommended minimum. Withdrawals staggered over the 3 to 5 years before retirement.
- 5 accounts: the optimum for most situations. Allows 5 years of staggered withdrawals.
Recommendation for the self-employed: 5 to 7 accounts
Self-employed persons at the increased limit (CHF 36 288.-/year) accumulate significantly larger amounts. With assets potentially exceeding CHF 1,000,000.-, opening 5 to 7 accounts is justified for optimal splitting.
Contribution allocation strategy
There are two approaches for funding your accounts:
Approach 1: fill one account after another
You fund a single account for several years until it reaches a target balance, then open the next one. For example, with a target of CHF 60,000.- per account:
- Years 1-8: fund account 1 (target CHF 60,000.-)
- Years 9-16: fund account 2
- And so on...
Advantage: management simplicity. Each account is the same size, which facilitates staggered withdrawal in equal amounts.
Approach 2: fund in parallel
You split your contributions across multiple accounts each year. For example, with 3 accounts: CHF 2,419.- per account per year.
Advantage: immediate diversification across providers. Disadvantage: some providers require a minimum contribution.
When to open additional accounts?
Ideally, start early and open your accounts progressively. Here is a typical plan:
- 25-30 years: open your first 3a account and start contributing the maximum
- 30-35 years: open your second account
- 35-40 years: open your third account
- 40-45 years: open the fourth and fifth accounts if necessary
It is never too late to open additional accounts, but the earlier you anticipate, the better the amounts will be distributed.
Staggered withdrawal: how it works
Staggered withdrawal of 3a accounts can begin at the earliest 5 years before retirement age. Here is an example calendar for a person with 5 accounts, retiring at 65:
| Age | Action |
|---|---|
| 60 | Withdraw account 1 |
| 61 | Withdraw account 2 |
| 62 | Withdraw account 3 |
| 63 | Withdraw account 4 |
| 64 | Withdraw account 5 |
Coordination with the 2nd pillar: plan 3a withdrawals in different years from the BVG capital withdrawal, as all pension withdrawals in the same year are combined for tax purposes.
Watch out for spouses
If both spouses have a pillar 3a, withdrawals by one and the other made in the same year are combined for taxation. Coordinate your withdrawals to avoid both spouses withdrawing a 3a in the same year.
Diversify providers
In addition to tax optimisation, spreading your accounts across different providers offers other advantages:
- Risk diversification: bank deposit guarantee is limited to CHF 100,000.- per bank
- Access to the best offers: each provider has its strengths (performant funds, low fees, digital service)
- Different investment strategies: one account in equities for growth, another in bonds for security
Summary
- Open 3 to 5 accounts if you are an employee, 5 to 7 if you are self-employed
- Stagger withdrawals over as many years as possible
- Coordinate with spouse's and 2nd pillar withdrawals
- Start early for optimal distribution
- Take advantage of the retroactive buy-back to fill years where you did not contribute the maximum
Ready to take action? Discover how to open a 3rd pillar or request a free personalised quote. Our advisors will help you define the optimal number of accounts and the withdrawal calendar.