Who is entitled to pay into the 3rd pillar?

Summary:

• Employment income subject to AHV.
• Spouses and registered partners may both pay the maximum possible amount if both are employed.
• It is not enough just to make AHV contributions for people who are not gainfully employed.
• Nor is it enough simply to have other income, such as rent, interest or dividends.
• You can pay in from the age of 18 and a maximum of five years beyond the normal retirement age (on proof that you are still employed).

Special Cases:

• Unemployed persons may pay in. ALV daily allowances are regarded as replacement income.
• A disability pension is not a replacement income. IV retirees may only pay in if they have an income from employment that is subject to AHV contributions in addition to the partial IV pension.
• Even after early retirement, it is still possible to pay into the 3rd pillar. Condition: AHV-liable income (from a sideline job).
• True cross-border commuters to Germany are not allowed to pay into the pillar 3a.
• Cross-border commuters to Germany who are weekly residents in Switzerland or cross-border commuters to Austria may pay into the pillar 3a. However, they must claim the tax deduction from the cantonal tax office themselves. They must submit an application for a tariff adjustment by the end of March of the following year. The tax difference will then be refunded.
• Foreigners without a C residence permit may pay into pillar 3a if withholding taxes are deducted from their wages. However, they must claim the tax deduction themselves (deadline: 31 March of the subsequent year).
• Those who receive their wages in the simplified payroll procedure are not allowed to pay into pillar 3a. No deduction can be made in the tax return.

Maximum Amount:

• The same rule regarding the maximum amount applies to all persons who are allowed to deposit. A distinction is made between those who pay pension fund contributions and those who do not pay pension fund contributions.

Condition: AHV-liable income from employment

If you want to pay into the pillar 3a, you must have income from employment. This means that you have to work for a living, whether as a self-employed person or as an employee. If AHV contributions are also deducted from this earned income, the condition is met and you can pay into pillar 3a and deduct the payment from your taxable income.

If you are not working, in other words if you are not employed, you cannot make any payments into pillar 3a. It is not sufficient if you simply make AHV contributions to avoid missing contribution years in AHV (contributions for those who are not employed).

It is also not enough if you only have income from rents, dividends or interest. You must have income from employment for which AHV is paid. When it comes to the question of whether you are allowed to make contributions, the amount of income from employment that is subject to AHV is basically irrelevant. The amount only plays a role when it comes to the question of how much you are allowed to pay in.

Earliest possible start and latest possible end of the 3rd pillar

You can pay into the pillar 3a for the first time if you are liable to pay tax yourself. In Switzerland, you become liable to pay tax at the age of 18. From the year in which you turn 18, you can pay into the 3rd pillar, provided that you earn an income subject to AHV contributions.

If you can prove that you have been working beyond the ordinary retirement age, you can continue to use pillar 3a for a maximum of five years. During this time, you can continue to make payments.

Special Cases

Unemployment

If you are unemployed and receive daily ALV benefits, you can continue to pay into pillar 3a. Unemployment benefits are regarded as a replacement for the required employment income.

If your daily allowance exceeds CHF 81.90 per day, you are mandatorily insured for the risks of death and disability through the BVG Contingency Fund (2nd pillar). In this case, you may pay the maximum amount of the small pillar 3a. However, the actual payment may not exceed your income from employment (including daily allowances) in the year concerned.

If you have been taxed and have not (no longer) received unemployment benefits in the year concerned, you may no longer pay into pillar 3a. However, this also means that you can still pay in the year, in that you were notified to no longer receive unemployment benefits.

Receiving an invalidity pension

Unlike the ALV daily allowance, the invalidity pension is not regarded as replacement income. You can therefore only pay into pillar 3a if you have an income subject to AHV contributions in addition to your IV pension. The maximum amount you can pay in depends on whether you are affiliated to a pension fund or not.

Early retirement

If you have an income subject to AHV contributions despite early retirement, you can continue to pay into pillar 3a. The maximum amount you may pay in depends on whether you continue to pay pension fund contributions or not.

Cross-border commuters Germany / Switzerland

A distinction must be made between cross-border workers who normally return to their place of residence in Germany every day (for a maximum of 60 working days per year without returning to their main place of residence) and cross-border workers who return to Germany only at weekends (more than 60 working days per year without returning to their main place of residence).

The first category are considered to be true cross-border commuters. They are only subject to subordinate tax liability in Switzerland. Although a tax (maximum 4.5 %) is also deducted from their income, this tax is credited against the tax payable in Germany. The main tax liability for wages earned in Switzerland is in Germany. For this reason, genuine cross-border commuters cannot make any payments into the 3rd pillar of Switzerland. A German cross-border commuter direct insurance is an alternative.

The second category is considered to be weekly residents in Switzerland. Their income is fully taxable in Switzerland. However, since their main residence is still in Germany and therefore the Swiss state has no access to weekly residents, taxation at source applies. This means that before the salary is paid out, the employer must deduct the Swiss withholding tax from the salary and hand it over to the canton. German weekly residents in Switzerland can pay into the 3rd pillar, but they must claim the tax deduction themselves.They must request a rate adjustment from the cantonal tax office by the end of March of the following year at the latest.

Cross-border commuters Austria / Switzerland

The double taxation agreement between Switzerland and Austria does not recognise cross-border commuter status. Accordingly, the salary earned in Switzerland is fully taxable in Switzerland. Withholding tax is also applied here, which is why payments into the 3rd pillar are possible. However, as is already the case for German weekly residents in Switzerland, the tax deduction must be claimed by the resident himself. If this is done by 31 March of the following year at the latest, the withholding tax will be corrected subsequently. The tax savings are refunded.

Cross-border commuters: Italy-Switzerland

As of 1 January 2024, there will be a new double taxation agreement between Italy and Switzerland. Persons who enter the labour market after 17 July 2023 are considered “new” cross-border commuters. They will be taxed at source from 1 January 2024 and can only benefit from the tax-privileged Pillar 3a through the subsequent ordinary assessment.

Cross-border commuters who worked in the cantons of Graubünden, Ticino and Valais between 31 December 2018 and 16 July 2023 are subject to a different rule. These persons will continue to be taxed exclusively in Switzerland, which is why these persons can deduct their Pillar 3a payment in their tax return.

Foreigners without a residence permit C

Foreign workers who are employed in Switzerland and do not (yet) have a C residence permit can pay into the 3rd pillar if withholding tax is deducted from their wages. However, they must apply for the tax deduction themselves to the cantonal tax office by 31 March of the following year. The application must be accompanied by the pension foundation’s certificate of payment. The difference between this and the withholding tax paid will then be refunded.

Wage in simplified payroll procedure

Is your wage calculated in a simplified payroll procedure? If so, you will unfortunately not be able to make any contributions to pillar 3a.

Explanation: In the simplified accounting procedure, all social benefits and income tax (flat-rate tax of 5 %) are deducted from wages before payment. The income that is deducted in this way must still be listed in the tax return, but it is no longer included in taxable income (purely declarative character for other calculations such as premium reductions). Since the income earned in the simplified payroll procedure is not added to the taxable income, no deduction for pillar 3a contributions can be claimed in the tax return.

Nor is a retroactive tariff correction granted, as is the case with cross-border commuters to Germany with a weekly stay in Switzerland, cross-border commuters to Austria or foreigners without a C residence permit.