Pillar 3: should you withdraw or continue contributing to it after leaving Switzerland?

What is the Swiss 3rd pillar?

As a reminder, the third pillar forms part of Switzerland’s social security system, as defined by the constitution. It applies to all Swiss workers, regardless of their salary. How does the third pillar work? Let’s take a closer look at this complex system and its specific features.

The three-pillar system

The Swiss social security and pension system is based on three pillars:

• The first pillar covers basic social security, old-age and survivors’ insurance, or AVS.
• The second pillar covers occupational pension provision and retirement insurance, as governed by the Federal Act on Occupational Pension Provision (the famous LPP!). It also applies to cross-border workers.
• The third pillar: this refers to private pension provision. It is optional and voluntary. The third pillar allows you to supplement your second pillar and build up retirement savings. It therefore includes various insurance products, such as savings schemes, life insurance policies and investment funds.

The different types of third-pillar schemes

How can you make sense of this somewhat complex Swiss pension system? Without going into too much detail, there isn’t just one, but several forms of the third pillar:

• The 3rd pillar A (occupational pension scheme) – the bank-based model. It allows working people (employees, self-employed individuals and the unemployed) to make contributions, which are deducted from their income. When filing their tax returns, these contributions generally enable them to reduce their tax liability. Contributions are voluntary and can be stopped at any time, but they are subject to a cap.
• The 3rd pillar A (occupational pension) insurance model. It incorporates the features of the 3rd pillar A, with the additional option of choosing a “death benefit” or “disability benefit”. Unlike the 3rd pillar A banking model, contributions are generally not flexible.
• The 3rd pillar B (insurance model). It allows people living in Switzerland, whether in work or not, to make contributions into a life insurance policy. This can take various forms (dynamic funds, money market funds, etc.). The term of this type of policy depends on the product and the insurance company, with a minimum of 5 years (up to 20 years). In the event of early withdrawal (meaning that you decide to stop paying into the policy), significant penalties are incurred.

The third pillar can therefore be taken out either with a bank or with an insurance company.

Which should you choose, 3rd pillar A or B? It all depends on your circumstances and the level of cover you require, your tax rate and the tax rules in force where you live.

When can you access or withdraw funds from the 3rd pillar?

There are several situations in which an employee in Switzerland can withdraw funds from their tied 3rd pillar (or 3A) pension plan:

• Leaving the country for good (that is the subject of this article!)
• Becoming self-employed
• Buying a property as your main residence 
• Changing your 3rd pillar scheme by switching to a different option (3rd pillar B). It is then possible to transfer the funds.
• In the event of disability

For the voluntary third pillar (or 3B), the conditions for withdrawal or cancellation are more flexible. The initial withdrawal date is specified in the insurance policy, on your contract. However, it is also possible to withdraw funds from the third pillar B whenever you wish, without having to give a reason.

What is the contribution limit for the 3rd pillar in 2022?

In 2022, the maximum amount you can save into your 3rd pillar pension scheme is the same as in 2021. 

Throughout Switzerland, there are limits on the payments you can make between 1 January and 31 December 2022:

• CHF 6,883 if you are an employee and a member of a pension fund
• up to CHF 34,416 if you are self-employed and do not have a 2nd pillar pension (the limit is capped at 20% of your annual net income)

Please note: These limits apply to 3rd pillar A. The limit for 3rd pillar B depends on your personal circumstances and can be confirmed in more detail by your cantonal tax authority.

I’m leaving Switzerland: what about my third pillar pension?

Is your career in Switzerland coming to an end? If so, you will be entitled to withdraw the full amount of your tied 3rd pillar pension. When you leave Switzerland, you will often wish to continue making contributions to this pension and retirement savings scheme…

Unfortunately, you only have two options:

• Keeping your account in CHF in Switzerland (although many Swiss banks encourage their non-resident customers to close their accounts)
• Paying (a lot of money) for a Swiss bank account just for a few transfers a year

Is it better to reluctantly withdraw your 3rd pillar savings, or to keep contributing to it despite the high fees involved? b-sharpe offers a very simple and cost-effective solution to help you keep contributing to your 3rd pillar!

Should you continue to make contributions to your 3rd pillar pension scheme when you leave Switzerland?

In the case of 3rd pillar A, there is, in principle, no point in continuing to make contributions, as the tax benefit applies only to people who live in Switzerland or work there. In 2021, the tax benefit was even abolished for all cross-border workers who do not have quasi-resident tax status, which applies to the majority of them. In this specific case, withdrawing funds from the third pillar is therefore the best option.

In the case of 3rd pillar B, early withdrawal penalties apply if funds are withdrawn before the end of the contract term. These penalties are particularly steep (amounting to several thousand Swiss francs), and it is therefore preferable, if possible, to continue making contributions from abroad. 

However, the issue of currency exchange fees arises, as subscribers living outside Switzerland will need to contribute to their third pillar pension scheme in Swiss francs, even though they are paid in a different currency. Currency exchange transactions will therefore be necessary via a currency converter…

How do you make contributions to a 3rd pillar pension scheme if you no longer live in Switzerland?

Do you now live outside Switzerland but would like to continue contributing to your Swiss pension scheme? Here are the various options for making contributions to a 3rd pillar pension plan. 

Let’s take the most common example of someone who has euros at their disposal:

• Send euros (or any other currency) directly to fund the third pillar. The insurance company may provide the third pillar holder with a premium deposit account in CHF (free of charge, but this CHF account, which is specifically intended to receive third pillar premiums, must be requested explicitly). The holder can then make an international transfer from their euro account, which will incur charges. Furthermore, when the euros arrive in the Swiss franc account, they will be converted at a rate that is generally unfavourable (the bank will apply a margin of between 1.65% and 2%, as well as additional foreign exchange fees at some banks).

• Maintaining a CHF account with a Swiss bank. If the Swiss bank allows it, it is possible to keep your CHF account after leaving Switzerland. This allows you to have an account from which to make the necessary payments to top up your 3rd pillar pension. In this case, you will need to make contributions to this account. It is also a potentially very costly solution if the money is sent directly from the euro account abroad, on top of the monthly fees charged by the Swiss bank.

• Using b-sharpe: to avoid these significant charges and make life easier for expats in this situation, b-sharpe offers its clients a multi-currency account and a euro-to-Swiss franc converter. Here’s how it works: the client transfers euros free of charge to the EUR account provided by b-sharpe (this transfer is a SEPA transfer, so there are no fees). Upon receipt of these euros, b-sharpe converts them into Swiss francs and transfers them: either to the CHF premium deposit account under the 3rd pillar, or directly to settle the BVR (payment slip). 

Why use an online currency exchange service?

With this final solution, the customers concerned come out on top in every respect, because:

1. It is not necessary to hold a bank account in Switzerland
2. There are no transfer fees (as this is a SEPA transfer)
3. b-sharpe’s low foreign exchange margins allow you to cut your bank charges by two-thirds
4. b-sharpe is a service with no subscription fees, no sign-up costs, and is completely secure, with £3 million in insurance cover against hacking or misappropriation of funds

Start using b-sharpe and top up your 3rd pillar pension at minimal cost, whilst making significant savings on your currency exchange transactions! 100% online, b-sharpe is easy to use: it takes just 5 minutes to sign up for our currency exchange service.