The tax benefits of pillar 3a go beyond the deposit

Many people are aware that payments into pillar 3a can be deducted from their taxes. But there are other tax advantages that are just as important and that many people are not aware of. In this article on the tax advantages of pillar 3a, we also look at these other tax advantages.

The tax advantages apply equally to voluntary buy-ins to the pension fund.

1. deduction from taxable income

2. no wealth tax on pension assets

3. no income tax on interest and dividends

1. deduction from taxable income

Payments into pillar 3a can be deducted from taxable income in the tax return. The income that you have to pay tax on is reduced by the deductions.

How much tax you can save by paying into pillar 3a depends on two factors:

1. How much you earn: The higher your income, the more worthwhile it is for you to pay into a pension scheme. This is because income tax is progressive. The higher your income, the more you have to pay to the state and, conversely, the more you can save if you reduce your income by paying into a pension scheme.
2. Where you live: The second factor that determines the potential tax savings is where you live. If you live in a low-tax location, your tax savings will be lower than in a high-tax location. Logical, isn’t it?

Up to 48 % tax savings on the maximum amount of CHF 7,056

The following table shows the tax savings in the cantonal capitals in relation to the maximum permitted deposit of CHF 7,056 (2024). The tax savings on the deposit amount range from 10 to 48 per cent.

	Steuerbares Einkommen in CHF	50'000	75'000	100'000	150'000	200'000	250'000
AG	Aarau	21%	24%	28%	34%	37%	37%
AI	Appenzell	17%	18%	21%	25%	27%	26%
AR	Herisau	22%	25%	29%	34%	37%	37%
BE	Bern	24%	27%	33%	39%	43%	43%
BL	Liestal	26%	30%	35%	41%	43%	44%
BS	Basel	25%	26%	29%	34%	36%	43%
FR	Fribourg	26%	30%	33%	42%	44%	38%
GE	Genève	31%	32%	36%	42%	46%	46%
GL	Glarus	19%	22%	25%	31%	35%	35%
GR	Chur	24%	25%	28%	34%	36%	36%
JU	Delémont	24%	28%	34%	39%	41%	42%
LU	Luzern	21%	21%	25%	30%	34%	34%
NE	Neuchâtel	28%	31%	36%	43%	46%	41%
NW	Stans	18%	19%	22%	28%	27%	27%
OW	Sarnen	17%	17%	20%	25%	27%	27%
SG	St. Gallen	24%	29%	32%	37%	39%	39%
SH	Schaffhausen	20%	24%	28%	35%	37%	33%
SO	Solothurn	25%	27%	31%	37%	39%	39%
SZ	Schwyz	15%	17%	20%	25%	27%	30%
TG	Frauenfeld	22%	22%	27%	31%	35%	35%
TI	Bellinzona	23%	26%	31%	36%	39%	41%
UR	Altdorf	18%	18%	22%	26%	28%	28%
VD	Lausanne	24%	28%	35%	42%	46%	48%
VS	Sion	21%	27%	36%	44%	39%	39%
ZG	Zug	10%	17%	23%	23%	25%	25%
ZH	Zürich	18%	22%	27%	36%	41%	41%

Assumption: single, reformed, without children (source: Federal Tax Administration)

The comparison takes into account both cantonal and municipal taxes as well as direct federal tax.

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2. no wealth tax on pension assets

But that’s not all. Pension assets have another advantage. They do not have to be declared in the tax return. They are therefore not counted as taxable assets.

With an average wealth tax rate in Switzerland of 0.5 %, the savings over 30 years amount to a whopping 14 per cent.

Year	Asset development in pension provision	Asset development in free assets	Advantage of provision
1	100’000	100’000
2	100’000	99’500	+500
3	100’000	99’003	+998
4	100’000	98’507	+1’493
5	100’000	98’015	1’985
6	100’000	97’525	+2’475
7	100’000	97’037	+2’963
8	100’000	96’552	+3’448
9	100’000	96’069	+3’931
10	100’000	95’589	+4’411
11	100’000	95’111	+4’889
12	100’000	94’635	+5’365
13	100’000	94’162	+5’838
14	100’000	93’691	+6’309
15	100’000	93’223	+6’777
16	100’000	92’757	+7’243
17	100’000	92’293	+7’707
18	100’000	91’832	+8’168
19	100’000	91’372	+8’628
20	100’000	90’916	+9’084
21	100’000	90’461	+9’539
22	100’000	90’009	+9’991
23	100’000	89’559	+10’441
24	100’000	89’111	+10’889
25	100’000	88’665	+11’335
26	100’000	88’222	+11’778
27	100’000	87’781	+12’219
28	100’000	87’342	+12’658
29	100’000	86’905	+13’095
30	100’000	86’471	+13’529

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3. no income tax on dividends and interest

Because pension assets do not have to be declared in the tax return, the dividends and interest earned are also not taxable. They are therefore not added to taxable income, as is the case with dividends and interest on free assets.

We would also like to quantify this tax benefit and make the following assumptions:

• Annual dividends and interest income of 2 %
• Tax rate of 25 % for free assets

As you can see, these assumptions result in a further significant benefit for pension provision of another 24 per cent.

However, this advantage is only fully realised if you invest in genuine pension funds that reclaim withholding tax on foreign income.

Year	Asset development in pension provision	Asset development in free assets	Advantage of provision
1	100’000	100’000
2	102’000	101’500	+500
3	104’040	103’023	+1’018
4	106’121	104’568	+1’553
5	108’243	106’136	+2’107
6	110’408	107’728	+2’680
7	112’616	109’344	+3’272
8	114’869	110’984	+3’884
9	117’166	112’649	+4’517
10	119’509	114’339	+5’170
11	121’899	116’054	+5’845
12	124’337	117’795	+6’543
13	126’824	119’562	+7’262
14	129’361	121’355	+8’005
15	131’948	123’176	+8’772
16	134’587	125’023	+9’564
17	137’279	126’899	+10’380
18	140’024	128’802	+11’222
19	142’825	130’734	+12’091
20	145’681	132’695	+12’986
21	148’595	134’686	+13’909
22	151’567	136’706	+14’861
23	154’598	138’756	+15’842
24	157’690	140’838	+16’852
25	160’844	142’950	+17’893
26	164’061	145’095	+18’966
27	167’342	147’271	+20’071
28	170’689	149’480	+21’209
29	174’102	151’722	+22’380
30	177’584	153’998	+23’586

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Reduced tax on the withdrawal of pension assets

Tax is only payable when pension assets are withdrawn. This is a reduced tax, which is lower than income tax. This means that you save more tax when you pay in than you have to pay when you withdraw.

Here are a few calculation examples:

Tax advantage over 10 years:

	Income taxes
Payment 2023-2032 CHF 7,056 each	Tax saved: CHF 19,250
Purchase 2031 (CHF 70,560)	Tax paid: CHF 3,358
Total tax savings	CHF 15’892

Tax advantage over 20 years:

	Income taxes
Payment 2023-2042 CHF 7,056 each	Tax saved: CHF 38,500
Purchase 2041 (CHF 141,120)	Tax paid: CHF 7,393
Total tax savings	CHF 31’107

Tax advantage over 30 years:

	Income taxes
Payment 2023-2052 CHF 7,056 each	Tax saved: CHF 57,750
Purchase 2051 (CHF 211,680)	Tax paid: CHF 12,413
Total tax savings	CHF 45’337

Tax advantage over 40 years:

	Income taxes
Payment 2023-2062 CHF 7,056 each	Tax saved: CHF 77,000
Purchase 2061 (CHF 282,240)	Tax paid: CHF 17,467
Total tax savings	CHF 59’533

Assumption: single, reformed, no children, city of Zurich, CHF 100,000 income, withdrawal not in the same year as the pension fund (source: Swiss Federal Tax Administration)

Several 3a accounts for a staggered withdrawal

As the tax on withdrawals is progressive, it is worth accumulating several 3a accounts and withdrawing them in stages. This allows you to significantly reduce the taxes when withdrawing the 3a assets.

Withdrawal before retirement only possible in exceptional cases

Money paid into pillar 3a generally remains tied up until retirement. In the following situations, 3a assets can still be withdrawn if you:

• build or buy your own home,
• become self-employed (as a sole proprietorship without a GmbH or AG) or
• emigrate.

Long investment horizon needs to be utilised

As the money in pillar 3a can only be withdrawn on retirement, most 3a savers have an exceptionally long investment horizon. A long investment horizon enables a securities solution with equities. Crises can be sat out and temporary losses do not have to be realised.

Pillar 3b is not tax deductible

The term “pillar 3b” is also used here and there. However, Pillar 3b is nothing more than free savings with free assets. Pillar 3b insurance policies are also normal insurance policies. They have no tax advantages. Accordingly, 3b assets and the income from them must be declared in the tax return.

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Take a look at our interactive map to see how much pension provision pays off on balance for you where you live.