Pension planning Close gaps with a 3a purchase

In a few years’ time, it will be possible to make extra payments of “missed” contributions into pillar 3a.

by Emmanuel Ullmann 23 Jun 2020

Image: UBS

In the Swiss system, the 3rd pillar represents private retirement savings. On account of its tax benefits, pillar 3 is also subject to certain restrictions, in particular to a maximum annual amount. These “savings rights” currently expire if they are not used in the corresponding year. This means that once a gap has been created, it cannot be closed retroactively, in contrast to pillar 2 (pension fund). This was the starting point for a current motion, which was definitively adopted by the Swiss parliament on 2 June 2020: it should become possible to make extra payments for “missed” contributions at a later date and deduct them from your taxes. Even though it will take a few more years to implement the motion, this small intervention will have a big impact. It may not represent a fundamental change in the system, but it is an important addition.

Save when it suits you

It is in the nature of things that young professionals don’t give priority to pension provision. Retirement is a long way off, after all. In addition, people generally earn a lower income in the first few years of employment and use their savings for other purposes – such as further training or a trip around the world. Contribution gaps often also arise as a result of temporary unemployment or part-time work. Two to three decades after starting work, the picture can be very different. Your career has reached its highpoint and your children are able to stand on their own two feet. You have the possibility to save money, and pension planning has also become a more relevant issue.

Thanks to the new regulation, gaps in the 3a account can now be closed. This will allow you not only to consolidate your retirement planning individually, but also to reduce your current tax burden. Women in particular will be able to take advantage of the new provision on returning to work after a break to look after their families.

Encouragement of home ownership

The general public will also benefit. In principle, a pension system that remains healthy in the long term is in society’s interest. This change will help stabilize the system and exploit its potential. Tax losses should also remain relatively low – according to an analysis commissioned by the Verein Vorsorge Schweiz (VVS, Swiss pension fund association). The government’s calculations will probably also pay off because the risk of having to draw social benefits is reduced thanks to individual savings.

Ultimately, the decision is left to the individual. This is a welcome approach, as the patterns followed by CVs today are not as clear as when the pension system was designed. The creation of individual optimization opportunities makes the system more flexible and thus also more stable.

What you need to know

How do 3a purchases work in practice?

  • The maximum purchase amount is the difference between the maximum 3a amount you could have paid in for the contribution years and the 3a assets personally accumulated during the same period
  • However, the purchase amount calculated is limited to a maximum of 34,128 Swiss francs and can be claimed at most every five years
  • This should be possible from the age of 30 and once every five years after that (25+5 years, then at age 35, 40, 45, etc.)
  • The final possibility for making up for lost contributions is at the age of 60
  • Any withdrawals to finance home ownership are deducted from the maximum purchase amount