Three good reasons to take out a third pillar pension scheme before the age of 40
14 January 2025 | Comment(s) |
Guillaume Chassot
It is not always easy to think of retirement when you are 20 or 30. When you are young, it is often more stimulating to take on new training or professional challenges rather than imagining the moment when you retire. However, the best strategy to ensure that your income is sufficient when you retire is to think about it before you turn 40. In fact, it is never too early to plan for your future thanks to a third pillar pension scheme, especially when life insurance solutions allow you to save effortlessly. Here are some explanations and advice.
What is the third pillar?
In Switzerland, funding for retirement is based on three pillars. The first pillar (AVS/AHV) is a pension paid by the Swiss Confederation to retired people and financed by contributions from employees and employers. The second pillar (LPP/BVG) is a mandatory occupational savings scheme for most working people who have an employer. As for the third pillar, this is an individual and optional savings scheme, which can be taken out either with a bank or an insurance company.
The AVS/AHV pension under the first pillar depends on the number of years you have paid contributions during your working life. One year less of contributions, maybe because of a sabbatical or extended parental leave, could result in you losing 2.25% of your future pension, or around CHF 50 per month. If you take out a third pillar pension scheme, you will be able to make up for these shortfalls.
Let's take the example of someone who earned CHF 6,000 per month during their working life. When they reach retirement age, they will receive around CHF 3,600 a month from the first two pillars (calculated based on an LPP/BVG plan at the statutory minimum). This means that their standard of living could fall considerably, which is why it's so important to set up a pension plan under a third pillar. For example, if you put aside CHF 200 a month from the age of 30, you can expect to have a capital lump sum amount of CHF 135,000 when you retire (after deduction of tax on pension capital).
1. A secure way to finance your retirement as well as any home ownership plans
Unlike a bank account, where you tend to save for six months at a time before losing interest, a third pillar insurance policy guarantees that you save regularly. By taking out a life insurance policy (3a or 3b pillar) as early as possible, you can not only ensure a comfortable retirement but also fulfil your plans for buying your own home, for example. In fact, you are entitled to use your third pillar assets to finance part of the capital needed to buy a property or to pay off your mortgage.
2. The pension is guaranteed in the event of incapacity for work
One of the other advantages of taking out a third pillar life insurance policy is that in the event of a serious setback, such as incapacity for work (from three months' loss of earnings due to illness or accident), the insurance will take over payment of your premiums so that your savings target is secure. You can also cover a lump sum amount in the event of death or disability.
3. Significant tax savings
Finally, thanks to the 3a pillar (“tied pension provision”), you can automatically make considerable tax savings because you can deduct the maximum premium, which currently stands at CHF 7,056 a year. In addition, you can also invest all or part of your savings in an attractive investment fund if you opt for our VariaInvest product, which is an individual pension solution that provides protection, returns and flexibility and can be adapted as your life changes.
Maximum Pillar 3a contributions
To benefit from a tax reduction, you can deduct your pillar 3a contributions up to a maximum amount that varies each year. By paying the maximum authorised amount into a pillar 3a each year, you can save hundreds of francs in tax.
For 2025, the maximum amount to be paid into a pillar 3a is CHF 7,258.- for employees affiliated to a pension fund and CHF 36,288.- for self-employed people without a pension fund. To illustrate this advantage, let's look at an example. If, from the age of 35, you pay the maximum amount into your 3rd pillar a, you will save around CHF 40,000.- in tax until you reach retirement age.
As you can see, there are many advantages to starting to save as early and effortlessly as possible. With our private pension solutions, you can rest assured that you'll be able to enjoy a comfortable retirement with complete peace of mind.
Our experts are here to help you optimise your 3rd pillar. Take advantage of a no-obligation pension analysis!
