Private retirement savings How many pillar 3a accounts make sense?

According to the Swiss Federal Statistical Office, almost two-thirds of employed persons in Switzerland have a pillar 3a account today. Younger people also increasingly appreciate the benefits of the third pillar: one in three people pays into a private pension plan for the first time before the age of 25. Employed persons with a pillar 3a account can maintain their standard of living in old age and benefit from tax advantages every time they pay money in. But taxes play a major role when withdrawing capital too. You benefit most if you start saving early enough and spread the third pillar over several accounts.

Retirement capital is taxed at a reduced rate when it is paid out. The rate is subject to a varying degree of tax progression depending on the canton: the more assets you withdraw, the higher the tax rate that is applied. It’s important to remember that you have to withdraw all the assets from a single pillar 3a account in one go, but if you open several accounts, they can be closed in different years. The Federal Constitution, which sets out the rules for pension plans, does not specify how many 3a accounts you can have. It simply states that you can’t transfer partial amounts saved in one account to another. What’s more, unlike ordinary withdrawals in old age, only a certain proportion of pillar 3a assets can be withdrawn early to purchase residential property.

You can start withdrawing capital from the third pillar five years before reaching the normal retirement age, i.e. currently from age 59 for women and 60 for men. Anyone who continues working for longer can postpone withdrawing assets by a maximum of five years beyond the normal retirement age.

For reasons of tax progression, you shouldn’t withdraw pillar 3a assets in the same year as receiving a lump-sum payment from your pension fund. Married couples are best off setting up a joint plan for withdrawals from the third and possibly the second pillar.

Whether two, three or even more accounts make sense depends on various factors: the progression of capital payment tax varies from canton to canton; moreover, some cantons do not allow more than three accounts per employed person. On the other hand, multiple accounts facilitate flexible liquidity planning in retirement. And basing your decision about how many accounts to have solely on tax progression in your canton of residence carries a certain risk. If you move to another canton, you may be confronted with a different situation – and by then it may be too late to change course.

In many cases, it’s worth opening another account for amounts of around CHF 50,000 or more. The upper limit for the number of accounts to have depends on the number of years during which you can withdraw third-pillar capital. Here’s an example: If a woman retires at age 64 and wants to close her first 3a account at age 59, she has a total of six years available for 3a withdrawals, so a maximum of six accounts makes sense.

As mentioned above, the theoretical maximum number of accounts is reduced by cantonal regulations, cantonal tax progression and the amount of 3a capital – if only a small amount has been paid in, the tax savings will also be lower. Since accounts closed by married couples and couples in registered partnerships in the same year are counted together, a large overlap in the reference periods reduces the number of 3a accounts that makes sense for couples. As a simple rule of thumb, two to three pillar 3a accounts per employed person are appropriate in most cases. You should discuss any other solutions in detail with tax specialists or with the experts at UBS.