3a accounts work differently than normal savings accounts. This article shall show the peculiarities of the pillar 3a.
One peculiarity in advance. Many providers of 3a accounts and custody accounts allow a maximum number of accounts per insured person, for example five. However, this is not because it is regulated by law, but because the providers want to limit the administrative effort. More than five accounts also make no sense in terms of staggered withdrawals.
Peculiarities of pillar 3a
Payment before retirement is only possible in exceptional cases
Payments into pillar 3a are reserved for old age. Only in a few exceptional cases can the money be withdrawn before retirement, for example if you want to buy your own home, become self-employed or emigrate.
Transfer of partial amounts from one 3a account to another is not possible
Unlike free savings, with 3a accounts it is not possible to transfer any amount from one 3a account to another 3a account. 3a assets can only ever be moved as a whole. If you want to change providers, the entire account balance is always transferred. However, if there are several 3a accounts, each one can be transferred separately.
Also a payout is only possible as a whole
A withdrawal from a 3a account is also only possible as a whole. If you want to avoid having to withdraw your entire 3rd pillar assets in one go when you retire, you have to set up several 3a accounts. This allows for a staggered withdrawal, which can be very interesting from a tax perspective.
An exception is the early withdrawal for home ownership. If the money is used for a home, you can decide for yourself how much you want to withdraw from a 3a account. You do not have to withdraw the entire account balance at once. However, since pension funds charge a flat fee for each early withdrawal, it is still not usually worthwhile to withdraw very small amounts.
3a funds are managed by pension foundations
At the latest when you pay into the 3rd pillar, you realize that you are transferring the money to a pension foundation and not to your bank. This is because only foundations (or insurance companies) set up specifically for the purpose of tied pension provision are allowed to accept and hold 3a funds.
There are over 100 pension foundations and insurance companies in Switzerland that are recognized by the Swiss Federal Tax Administration (FTA). Recognition by the FTA is mandatory in order to be allowed to offer 3a products in Switzerland.
A crucial question is whether you approach building up a private pillar 3a with an insurance company or a bank.
No direct investment in individual securities possible
Although 3rd pillar assets can be invested in securities, they cannot be invested in individual securities, as is possible with free assets. Therefore, only funds that invest in a basket of securities are eligible. EFTs are popular, but they have the disadvantage that they cannot reclaim withholding taxes on foreign income. Better, therefore, are retirement funds or index funds. Read more in our comparison of ETFs and index funds.
The second ordinance to the Occupational Pensions Act (BVV 2) regulates the investment of pension assets. There are providers who divide their funds into BVV 2 compliant and non BVV 2 compliant funds.
Why a pillar 3a is interesting despite all the regulations
Despite the restrictions, pillar 3a enjoys a high level of popularity. And not for no reason. After all, the state promotes tied personal pension provision in the 3rd pillar. It allows you to deduct the payments made into pillar 3a up to the maximum annual amount in your tax return.
You still have to pay tax on the money when you withdraw it, but at a reduced tax rate. The bottom line is that it is very interesting to make provisions with the 3rd pillar.
Providing for the future means saving for later – saving for old age
Saving. That’s something you learn from an early age. Whether the old-fashioned way with a savings account or in digital form with an app or account solution. The idea is to put money aside for later, to fulfill a wish later, for example to buy a car.
Pillar 3a is also about saving for later. You save for your old age when you no longer want to or can work. In order to remain financially free and independent, there are three pillars in Switzerland. The first two pillars are more or less mandatory. The third pillar, which is the subject of this article, is voluntary.