Pensions

Pillar 3a – Don't neglect your deposit

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There's not long left to save on taxes! Source: iStock

A private pension is becoming increasingly important, and also offers tax benefits. In order to ensure that the amount paid in arrives at the financial institution in time to be deducted for tax purposes, payments to Pillar 3a must be made before the holidays.

In view of the the need to restructure the Old-Age and Survivors’ Insurance (Alters- und Hinterlassenenversicherung – AHV) and the decreasing occupational pension benefits, it is not certain whether the AHV and occupational pension pillars will be enough to maintain standards of living after retirement. A private pension (third pillar) is therefore becoming increasingly important. Firstly, it can be used to bridge any gaps left by the first two pillars. Secondly, it can be used to finance additional requirements – such as geriatric care, or even a trip.


 

Save on tax with the third pillar

The Federal Government is promoting the third pillar by allowing contributions to Pillar 3a to be deducted from your taxable income. Furthermore, no wealth tax will be due on the pension assets. Interest and capital gains will be exempt from income tax and withholding tax. The downside of this tax privilege is that the Pillar 3a pension assets will be tied up for up to five years before reaching pensionable age and may be withdrawn early only under certain circumstances (for example, financing home ownership).


 

Do not exceed the maximum contribution

Annual contributions to Pillar 3a are limited to 6787 francs per person for those belonging to an occupational pension fund, and 33,840 francs for those not belonging to such a scheme. Paying in more than the maximum contribution is not permitted and will not be accepted by banks and insurance companies. Some financial institutions will only return the excess amount, while some will return the full contribution. If you do not deposit this reverse transfer and subsequently miss the deadline for re-deposit, you will be unable to claim a tax deduction in the following year.

Don’t forget the holidays

To ensure that the amount paid in arrives at the financial institution in time to be deducted for tax purposes, payments to Pillar 3a must be made before the holidays. Always check that the bank has correctly entered the amount paid into the retirement savings account.