If you pay into pillar 3a, you can deduct up to a certain maximum amount from your taxable income. The situation is less clear with pillar 3b pension plans. Although providers of 3b insurance advertise tax advantages, they often remain vague when explaining the benefits. The reason? 3b insurance policies only offer limited tax advantages and can even have tax disadvantages. We show you the facts.
Contents
| Where can I enter pillar 3b in my tax return? |
| Pillar 3b tax deduction: What applies when paying in? |
| What is the tax treatment during the term of a 3b insurance policy? |
| Pillar 3b payout: Do I pay tax? |
Abstract
- Tax deductions are rarely possiblefor payments into pillar 3b. This is because you generally already utilise the maximum deduction through compulsory health insurance.
- As a rule, you do not have to pay tax on the income from pillar 3b mixed life insurance policies. Did you finance the insurance with a single premium? If so, the income is only tax-free if the insurance is used for pension provision.
- You must always pay tax on the value of an insurance policy – also known as the surrender value – as an asset.
Conclusion: 3b insurance policies are interesting if there is a need for insurance that needs to be covered. If there is no need for insurance, the tax advantages are too small to compensate for the disadvantages of mixed insurance policies. Our urgent recommendation is to keep insurance and savings separate. If you want to find out more, you can read more in our article on unit-linked life insurance. Incidentally, this recommendation applies not only to pillar 3b, but also to pillar 3a.
Where can I enter pillar 3b on my tax return?
You can declare pillar 3b in your tax return. Under the heading “Deductions” there is an item “Insurance premium”. Here you can deduct insurance premiums and savings interest from your taxable income. The following insurance policies are deductible:
- Premiums for private* health insurance (less premium reductions)
- Premiums for private* accident insurance
- Premiums for private* life insurance policies – this also includes pillar 3b insurance policies
*By “private” we mean that you pay the premiums and not your employer.
Pillar 3b tax deduction: What applies when paying in?
What is the maximum amount I can deduct for pillar 3b?
The maximum amount you can deduct for insurance and savings interest depends on your canton of residence. As a general rule, however, insurance premiums for pillar 3b insurance can only be deducted if the deduction has not already been exhausted by other insurance policies or savings interest.
What do we mean by this? Quite simply, because the deduction is limited and the premiums for compulsory health insurance can also be deducted, most cantons have nothing left over for pillar 3b insurance. The following table shows this impressively.
Other tax deduction for pillar 3b after deduction of the average health insurance premium
| in CHF | Maximum deduction for insurance premiums for single persons | Ø Annual premium for compulsory health insurance | remaining tax deduction (if negative nothing is left) |
| Source | estv.ch | en.statista.com | |
| Basel-Landschaft | 2’000.00 | 4’525.20 | -2’525.20 |
| Neuchâtel | 2’500.00 | 4’560.00 | -2’060.00 |
| Berne | 2’400.00 | 4’065.60 | -1’665.60 |
| Obwalden | 1’700.00 | 3’244.80 | -1’544.80 |
| Solothurn | 2’500.00 | 3’975.60 | -1’475.60 |
| Nidwalden | 1’800.00 | 3’246.00 | -1’446.00 |
| Zurich | 2’600.00 | 3’882.00 | -1’282.00 |
| Uri | 1’800.00 | 3’033.60 | -1’233.60 |
| Basel-Stadt | 4’100.00 | 5’085.60 | -985.60 |
| Law | 3’300.00 | 4’274.40 | -974.40 |
| Lucerne | 2’600.00 | 3’415.20 | -815.20 |
| Appenzell A.Rh. | 2’000.00 | 2’772.00 | -772.00 |
| Wallis | 3’060.00 | 3’696.00 | -636.00 |
| Appenzell I.Rh. | 2’900.00 | 3’422.40 | -522.40 |
| Glarus | 3’000.00 | 3’493.20 | -493.20 |
| Aargau | 3’200.00 | 3’670.80 | -470.80 |
| Saint Gallen | 3’200.00 | 3’500.40 | -300.40 |
| Schwyz | 3’200.00 | 3’428.40 | -228.40 |
| Schaffhausen | 3’750.00 | 3’873.60 | -123.60 |
| Thurgau | 3’500.00 | 3’535.20 | -35.20 |
| Train | 3’300.00 | 3’238.80 | 61.20 |
| Vaud* | 4’800.00 | 4’376.40 | 423.60 |
| Ticino | 5’200.00 | 4’671.60 | 528.40 |
| Grisons | 4’500.00 | 3’483.60 | 1’016.40 |
| Freiburg** | 4’810.00 | 3’715.20 | 1’094.80 |
| Geneva | (special case see below) | (special case see below) |
**Within the maximum deduction of CHF 4,810, contributions to life insurance policies can be deducted up to a maximum of CHF 750 (for single persons).
Special case canton of Geneva
The canton of Geneva allows deductions for 3b insurance and interest on savings capital in addition to health insurance premiums. It differentiates between singles and married persons and the question of whether contributions were made to the 2nd pillar or pillar 3a.
For single persons:
- CHF 2,232 if contributions were made to the 2nd pillar (pension fund).
- CHF 4,464 if you have not paid into the pension fund or pillar 3a in the year in question.
For married persons:
- CHF 3,348 if both persons have made contributions to the 2nd pillar (pension fund).
- CHF 5,022 if one of the two spouses has not made any contributions to the 2nd pillar (pension fund).
- CHF 6,696 if neither spouse has made any contributions to the 2nd pillar (pension fund).
In addition, there is a deduction per child of:
- CHF 913 if both spouses have made contributions to the 2nd pillar (pension fund).
- CHF 1,370 if one of the two spouses has not made any contributions to the 2nd pillar (pension fund).
- CHF 1,826 if neither spouse has made any contributions to the 2nd pillar (pension fund) or if a single parent has not made any contributions to the 2nd pillar.
Source: Article 31(d), Loi sur l’imposition des personnes physiques (LIPP)
What is the tax treatment during the term of a 3b insurance policy?
Pillar 3b life insurance policies must always be taxed as assets if they have a surrender value. You must therefore declare such insurance policies in your tax return.
Whether the income from life insurance policies is also taxable depends on the type of insurance. If the mixed life insurance policies of Pillar 3b are formed through periodic premiums (savings process), the income does not have to be taxed. The situation is different for insurance policies that are financed by paying a single premium. In this case, it only becomes clear whether the income is taxable when it is paid out. More on this in the next chapter on taxes on the payout of a 3b insurance policy.
Pillar 3b payout: Do I pay tax?
Although premiums from pillar 3b life insurance policies are often not deductible from taxable income, life insurance benefits are not automatically tax-free. We differentiate according to the reason for the payout and the type of insurance.
Pure term life insurance: reduced tax on death and disability benefits
Payouts from term insurance due to death or disability must be taxed. However, they are taxed separately from other income. This is advantageous because income tax is progressive and if taxed separately, progression starts again at zero. In addition, a reduced tax rate is applied:
- at the federal level: – 80 % of the usual tax rate for income
- at the canton: – 60 % of the usual tax rate for income
The tariffs apply both to pensions and to the payment of one-off sums, so-called lump-sum benefits.
Mixed life insurance policies: conditional taxes on capital payouts
For tax purposes, a distinction is made between life insurance policies with periodic premiums and those financed by a single premium.
For insurance policies with periodic premiums, the payout of the capital saved is generally tax-free. This applies regardless of when and for what reason (expiry of the contract term, cancellation, death) the capital benefit is paid out.
In the case of insurance policies financed by a single premium, the payout in the event of death is tax-free. Otherwise, the payout is only tax-free if the following three conditions are met:
- Insurance is taken out before the age of 66;
- The minimum term of the insurance at the time of payment is 5 years (or 10 years for unit-linked or unit-linked insurance); and
- Payment is made from the age of 60 at the earliest.
If the conditions are not met, the difference between the single premium and the insurance benefit is taxable together with the other income.
In the event of an insured event (death or disability), pensions and lump-sum benefits are paid out in addition to the capital saved. Pensions and lump-sum benefits are taxed in the same way as pure risk insurance.
Together with the Swiss Insurance Association (SIA), the Federal Tax Administration has developed criteria to define how high the risk benefits must be in relation to the savings portion in order for a pillar 3b insurance policy to qualify as a mixed life insurance policy and for the income from the capital portion not to be taxed.
Pure endowment insurance without risk cover (with single premium): Income tax on withdrawal
Pure endowment insurance policies without risk cover for death or disability, which are financed by single premiums, are used exclusively for investment purposes. Because they have no risk cover, they lack the character of pension provision. Such pseudo-insurances are therefore treated in the same way as bank products. The difference between the premiums paid and the payout must be taxed as income. This also includes profit participation.
Capital-forming life insurance policies are also known as surrenderable life insurance policies.
Overview: Maximum deductions for insurance premiums and savings interest (2023)
Maximum deduction by the federal government:
| Have you made contributions to the 2nd pillar (BVG) or pillar 3a? | for non-married persons | for married couples | + per child |
| Yes, with BVG / 3a | CHF 1’800 | CHF 3’600 | CHF 700 |
| No, without BVG* / 3a | CHF 2’700 | CHF 5’400 | CHF 700 |
Maximum deduction by the cantons:
Some cantons orientate themselves on the federal deduction, others grant lower or higher maximum deductions, as can be seen in the following table.
| Canton | for non-married persons with BVG / 3a without BVG / 3a | for married couples with BVG / 3a without BVG / 3a | + per child |
| Zurich | CHF 2’600 CHF 3’900 | CHF 5’200 CHF 7’800 | CHF 1’300 |
| Berne | CHF 2’400 CHF 3’500 | CHF 4’800 CHF 7’000 | CHF 700 |
| Lucerne | CHF 2’600 CHF 3’300 | CHF 5’000 CHF 6’400 | CHF 700 |
| Uri | CHF 1’800 CHF 2’700 | CHF 3’600 CHF 5’400 | CHF 700 |
| Schwyz | CHF 3’200 CHF 4’800 | CHF 6’400 CHF 9’600 | CHF 700 |
| Obwalden | CHF 1’700 CHF 2’550 | CHF 3’300 CHF 4’950 | CHF 700 |
| Nidwalden | CHF 1’800 CHF 2’700 | CHF 3’600 CHF 5’400 | CHF 700 |
| Glarus | CHF 3’000 CHF 4’500 | CHF 6’000 CHF 9’000 | CHF 1,000 |
| Train | CHF 3’300 CHF 5’000 | CHF 6’700 CHF 10’100 | CHF 1’100 |
| Fribourg | CHF 4’810 | CHF 9’620 | CHF 1’140 |
| Solothurn | CHF 2’500 CHF 3’750 | CHF 5’000 CHF 7’500 | CHF 650 CHF 975 |
| Basel-Stadt | CHF 4’100 | CHF 8’100 | CHF 0 |
| Basel-Landschaft | CHF 2’000 | CHF 4’000 | CHF 450 |
| Schaffhausen | CHF 3’750 CHF 5’625 | CHF 7’500 CHF 11’250 | CHF 1,000 |
| Appenzell A.Rh. | CHF 2’000 | CHF 4’000 | CHF 1,000 |
| Appenzell I.Rh. | CHF 2’900 CHF 3’400 | CHF 5’800 CHF 6’800 | CHF 600 |
| Saint Gallen | CHF 3’200 CHF 3’700 | CHF 6’400 CHF 7’400 | CHF 1,000 |
| Grisons | CHF 4’500 CHF 5’700 | CHF 9’000 CHF 11’400 | CHF 1,000 |
| Aargau | CHF 3’200 | CHF 6’400 | CHF 0 |
| Thurgau | CHF 3’500 | CHF 7’000 | CHF 1,000 |
| Ticino | CHF 5’200 CHF 7’400 | CHF 10’500 CHF 14’800 | CHF 1’200 |
| Vaud | CHF 4’800 | CHF 9’600 | CHF 1’300 |
| Wallis | CHF 3’060 | CHF 6’130 | CHF 1’120 |
| Neuchâtel | CHF 2’500 CHF 3’125 | CHF 4’900 CHF 6’125 | CHF 800 |
| Geneva | CHF 2’232 CHF 4’464 | CHF 3’348 CHF 6’696 | CHF 913 |
| Law | CHF 3’300 CHF 4’060 | CHF 6’600 CHF 7’360 CHF 8’120 | CHF 760 |