Alexa Seleno

pillar 3a and 3b what are the differences?

Juil 19, 2023
pillar 3a and 3b what are the differences?

middle-aged woman getting ready to sign her insurance contract

A 3rd pillar corresponds to an individual savings plan for retirement in Switzerland. It is also known as “pillar 3”. It allows you to build up long-term savings for retirement, death or disability. Although pillar 3a is reserved for people who are subject to AVS (old-age and survivors’ insurance) and have an income in Switzerland, this is not the case with pillar 3b, which is open to everyone. Here’s what you need to know about these two versions of the 3rd pillar.

Two solutions that share the same objective and some differences

The third pillar in Switzerland is divided into two categories: the linked third pillar 3a and the free third pillar 3b. Although they are both intended to be used to supplement Social Security benefits, there are important differences between the two plans which we will now explain by detailing each of them.

The Third Pillar 3a (linked)

The linked third pillar 3a is an individual retirement savings scheme, whose contributions paid are deductible from taxable income, thus reducing the tax burden. However, it is important to note that the money invested in 3a is subject to a few restrictions. First of all, there are limits with regard to the deposits that one can make in this one, annually. This cap does not represent a specific amount. It varies according to the personal situation of each saver. This is why the latter must inquire with the financial institutions which offer such products in order to know theirs.

More importantly, you should know that there are strict conditions attached to the early withdrawal of funds for the third pillar 3a. Indeed, they can only be withdrawn at the time of retirement or when purchasing a principal property. If this is not the case, penalties will apply upon withdrawal. It is therefore suggested to speak to a financial adviser to understand if the linked third pillar is the best choice for us.

The third pillar 3b (free)

With regard to the free third pillar 3b, there are also some advantages, the main one being that it does not contain an annual contribution ceiling. This means that a saver can deposit as much money as he wishes, at any time. In addition, unlike the linked third pillar 3a, pillar 3b can be used to cover other needs, such as protection in the event of death or disability, for designated beneficiaries. Finally, 3b benefits are generally tax exempt.

However, contributions paid to 3b are not tax deductible, unlike contributions paid to pillar 3a. You should also know that the products found in a third pillar 3b can be riskier than those of 3a (such as actions, For example). But as it is available to everyone, and not only to those with an income in Switzerland, this option remains very attractive for a large number of savers.

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