You can set up pillar 3a with either a bank, a digital provider, or as a life insurance. Each choice has its own upsides and downsides. Here, you’ll find out how 3a life insurance in Switzerland works and whether it might make sense for you to cancel it.
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Should I cancel or keep my pillar 3a insurance?
Consider cancelling your insurance if switching providers offers better long-term returns, even if the surrender value is low.
Use our Excel tool to see if exiting pillar 3a is worthwhile for you.
What all options have in common
Whether it’s a bank, a digital provider, or an insurance company, the basic rules are the same.
- There is a maximum amount of CHF 7,258 for pillar 3a.
- The money is tied up until retirement and can be withdrawn earlier in rare cases. For example, when you leave Switzerland.
- You can deduct your 3a contributions from your taxable income. When you withdraw the pillar 3a, it is taxed as capital at a reduced tax rate.
Pillar 3a with a bank: How does it work?
With a bank or a digital provider, you can choose between:
- a 3a account that pays interest
- a 3a securities solution where your money is invested in securities.
You decide for yourself how much and when you want to deposit. You can usually transfer your existing 3a balance to another provider for free.
Can I withdraw from pillar 3a when I leave Switzerland?
If you move away from Switzerland, you can take out your full pillar 3a balance. You can also choose to keep your money in pillar 3a, but you will not be able to make new payments unless your income is subject to AHV.
If you take out pillar 3a funds while living in Switzerland, you will pay tax on the withdrawal at a lower rate. The linked article provides an overview of capital tax rates for each canton.
If you withdraw pillar 3a funds while living abroad, you should be aware of the costs involved. Many banks and online providers charge a fee for international withdrawals. For instance, finpension charges CHF 250 if you have been a customer for more than a year. If you have been a customer for less than a year, the fee increases to CHF 750.
Withholding tax will also be deducted, which may be lower than the usual Swiss capital tax rate. You should also check if you will owe taxes in your new country. Make sure to confirm the exact amounts with the local authorities.
Pillar 3a as life insurance in Switzerland: How does it work?
With a pillar 3a as an insurance, you combine savings and insurance. You sign a contract with a fixed term. In the contract, you specify:
- how much you deposit per year
- how long you pay in
The product is usually called life insurance. It’s available as an interest or securities solution.
Keep in mind: You are bound to the contract until it ends, often until retirement. If you want to make changes or withdraw early, fees usually apply. It’s also not possible to change providers for free, as doing so will end the contract.
Where does my money go?
Your deposited money flows into several pots:
- Savings part: This money is invested for your retirement.
- Insurance part: This is used to pay for insurance coverage.
What insurance cover do I receive?
3a insurance often covers 2 risks.
- Death: If the insured person dies, the family receives an agreed sum.
- Incapacity to work: If you are unable to work due to illness or an accident, the insurance covers your premiums (premium exemption). In some cases, the insurance also pays a pension.
The benefits can differ significantly depending on the provider. It is important to look into the details before deciding.
Costs of 3a life insurance
3a insurance can involve various costs, for example:
- Premiums for insurance cover
- Sales commissions and brokerage fees for the sale
- Administrative and product costs (in the case of securities solutions)
- Costs in the event of early termination
- Surrender value in the event of early termination
If you cancel your insurance early, you’ll only get back part of what you have paid in. This is called the surrender value.
In the first few years, your surrender value might be very low, sometimes even CHF 0. That’s because sales commissions and brokerage fees are charged right at the start.
3a life insurance: Disadvantages explained
1. Less flexible when it comes to payments
You must make the required payments under your contract. If you want to pause payments, options are very limited, and a longer payment break is usually not possible.
2. Insurance cover does not always fit
For young people with no dependents, this insurance coverage is often unnecessary. Separated risk insurance, not tied to pillar 3a, gives more flexibility and can be adjusted or cancelled as your life changes.
3. High costs when you leave (Switzerland)
If you decide to end your 3a insurance before the agreed term, you will receive the surrender value. This amount is usually much lower than the total premiums you have paid, mainly due to initial fees and commissions. The same situation applies if you leave Switzerland and want to access your pillar 3a funds early.
4. Purchasing a home is more difficult
If you want to buy a home, only the reduced surrender value of the 3a insurance counts as your equity, not the total amount you have paid in. With 3a insurance, withdrawal timing is fixed in the contract. Staged withdrawals are difficult, which can lead to higher taxes as lump sums are taxed progressively.
Which pillar 3a is right for me: a bank or life insurance?
Think about whether you really need insurance cover. Insurance comes with costs. If you don’t need it, a pillar 3a at a bank or with a digital provider, such as finpension, is usually simpler and more flexible. If you do need insurance, a separate risk insurance is often a more flexible choice than tying it to pillar 3a.
Do I need insurance for loss of earnings?
If you become unemployed, you are entitled to unemployment benefits. After a waiting period of no more than 20 days, you will usually receive 70-80% of your previous salary.
Have you been employed for at least 12 months in the 2 years prior to registering with RAV? Then you are entitled to an allowance of 200 to 640 days. This corresponds to approximately 1 to 3 years.
The exact number depends on your age, the contribution period, and whether you have dependent children.
In short: If you can manage on 70–80% of your salary, you probably don’t need extra insurance cover.
Do I need insurance for death?
Do you have people who rely on your income? If not, insurance is usually not necessary.
If you do, the need for insurance must be assessed on a case-by-case basis. It is best to clarify the following:
- How high are the widows’ and orphans’ pensions from the AHV and pension fund?
- How high is your current income?
- What is the difference between the pensions and your income?
- Could your partner cope with the financial loss?
