If you pay into the 3rd pillar every year, you can not only deduct it from your taxes and save but make a profit as well. This profit – the return – accumulates in pillar 3a and increases exponentially every year due to compounding. That is why: the sooner you pay into pillar 3a, the more money you will have.

Logically, more money will accumulate in pillar 3a with each passing year. However, many people are unaware that, as well as the amount paid in, the profit generated makes a big difference over the years. The return is credited to the total pillar 3a amount each year. Since the total amount is constantly increasing, the profit increases exponentially.

Comparison: start of pillar 3a at age 25 vs. 40

Scenarios with an annual deposit of CHF 6883 into pillar 3a with 3% return

Comparison at the start of payment, 25 years vs. 40 years

Small amounts early are better than the maximum amount late

It’s also worth starting pillar 3a early even if you can’t pay in the maximum amount. The return means that at the age of 65 you have more assets than someone who has paid the same amount but starts paying in later. This is clearly demonstrated by the following calculation:

  • Person 1 pays CHF 3933 into pillar 3a for 35 years and ends up with CHF 244 931* at a return of 3%. Person 1 pays in total (without return) CHF 137 660.
  • Person 2 pays in the full amount of CHF 6883 for 20 years and ends up with CHF 190 497 at a return of 3%. Person 2 thus earns CHF 55 000 less than Person 1, although both paid the same amount in total, CHF 137 660. 

*The payments were already made at the start of the year. 

Comparison of two people who have paid into pillar 3a for different lengths.

Small amounts early are better than the maximum amount late

Please note that you are unable to make up the annual payments retroactively and the best time to pay in is at the start of the year. That way you derive maximum benefit from the compounding.
Säule a_Vergleich_Felix_3a
As so often in life, we just put things off. That’s how I saw pillar 3a for a long time. I didn't give any serious thought to it. I'm now happy to have a pillar 3a and pay into it regularly, which gives me more security for later.

FAQs about pillar 3a

What is pillar 3a?

Pillar 3a ensures your private provisions. It is voluntary and supplements the 1st pillar (state benefits, AHV/IV) and 2nd pillar (occupational provisions, pension fund). Its purpose is to maintain your accustomed standard of living when you retire.

Are private provisions in pillar 3a really necessary?

Private provisions are highly recommended if you want to lead a self-determined life in old age. According to the Federal Constitution, discounting private provisions, you can expect about 60% of your income prior to retirement.

This depends on factors such as your income or contribution gaps. 60% is the benefit target for low and medium incomes. The higher your income, the bigger the gap. A pillar 3a pension solution is a way of closing these gaps in coverage. 

What are the advantages of pillar 3a?

Pillar 3a not only ensures you a self-determined future, it also allows you to close any income gaps. Other advantages:

  • Save on taxes: you can deduct the payments from your taxable income. Calculate how much you can save using the tax savings calculator.
  • Make your dreams come true: an early withdrawal from pillar 3a is possible if, for example, you buy your own home, become self-employed or emigrate.
  • Early retirement: you can access the pillar 3a funds as early as five years before you reach AHV retirement age.

Pillar 3a at a bank or insurance company: what is the difference?

If you only want to save on taxes, a bank pillar 3a solution makes sense.

Taking out insurance offers you additional security and opportunities. If you suddenly become disabled, the insurance company will continue paying the savings contributions for you so that you reach your savings target. You can also cover yourself against disability and death. Find out more about the different pillar 3a solutions.

Why should I set up several pillar 3a accounts?

It is highly prudent to have several pillar 3a accounts. This allows you to have your assets paid out in different tax years and avoid progressive taxation. Remember: the more capital you draw in a single year, the higher the tax rate. Check with your canton how many pillar 3a accounts you are allowed, individual cantonal tax authorities limit the number of accounts.

What is the maximum pillar 3a amount in 2022?

In 2022 the maximum amount for persons with a pension fund is CHF 6883. For persons not affiliated to a pension fund, e.g. the self-employed, it is CHF 34 416 or max. 20% of income.

Find out more about pillar 3a

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image source: Unsplash, Priscilla Du Preez

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