3rd pillar: Is it beneficial to have several accounts?
Are you wondering if you have multiple accounts of 3rd pillar, this famous cornerstone of Swiss pension provision, a good strategy? You are not alone! Whether you already have a 3rd pillar or are taking the first steps in planning for your retirement, the question is worth asking. After all, it's about your future, and every decision counts. So let's take a look at whether multiplying 3rd pillar accounts is a good idea or an unnecessary complication.
Is there a maximum number of 3rd pillars authorized by law?
In Switzerland, there is no law that limits the number of 3rd pillar accounts you can have. This flexibility allows you to adopt a personalized approach to managing your retirement savings. However, it is essential to understand that, despite the lack of restrictions on the number of accounts, there is a deductible limit for 3rd pillar 3a linked which regulates the total amount of payments that can be deducted from your taxable income each year.
Here are the current ceilings for payments into the 3rd pillar 3a:
- For employees affiliated to the 2nd pillar: The ceiling is CHF 7,258 per year.
- For self-employed persons not affiliated to a 2nd pillar: The ceiling rises to CHF 36,288 per year.
This means that, regardless of the number of linked 3rd pillar accounts you have, the total sum of payments into these accounts must not exceed the limits mentioned above. For example, if you have three linked 3rd pillar accounts and you are an employee, the total sum of contributions to these accounts should not exceed CHF 7,056 per year.
Why is it beneficial to have several 3rd pillars?
Diversifying your savings
The well-known adage not to put all your eggs in one basket finds particular resonance in the field of savings and investment, including when it comes to the 3rd pillar. Indeed, diversifying your investments by subscribing to several 3rd pillar accounts can prove to be a wise strategy for several reasons.
First of all, having several 3rd pillar accounts allows you to spread the risks. By investing your money in different companies or financial institutions, you minimize the risks associated with the performance of a single entity. In the event of an institution underperforming, your overall savings remain protected thanks to diversification.
In addition, this strategy offers the possibility to explore different types of investments. For example, you could choose to have a 3rd pillar account that guarantees your capital at 100% and offers a fixed interest rate, thus ensuring security and predictability for part of your savings. At the same time, another account could be oriented towards riskier but potentially more profitable investments, for example investing in investment funds or shares, thus making it possible to aim for higher returns in the long term.
Benefit from the advantages of banking and insurance
Having several 3rd pillars gives you the opportunity to simultaneously benefit from the advantages offered by banks and insurance companies, without having to choose exclusively one or the other. This approach gives you access to the best of both worlds, thus optimizing your pension strategy.
Advantages of a 3rd pillar insurance:
When you opt for a 3rd pillar in the form of insurance, you rely on security. Insurance offers you a stable investment with the guarantee of a predefined capital at the end of the contract, without surprises. In addition, insurance contracts often include additional protections, such as disability or death coverage, offering great security for you and your loved ones. In addition, in the event of bankruptcy of the insurer, your capital is 100% protected, unlike banks.
Advantages of a 3rd pillar in banking:
On the other hand, choosing a 3rd banking pillar gives you increased flexibility, especially in terms of payments. The costs associated with a banking pillar are generally lower than those of a 3rd pillar in insurance, making this option economically attractive. One notable aspect is the lack of cash value, which can be an advantage if you are considering withdrawing your assets early. For example, for a real estate project, a 3rd banking pillar offers greater flexibility and facilitates the release of funds.
Check out our article on The differences between banking and insurance to find out more.
Adjust your strategy based on performance and preferences
In addition to the advantages of diversifying investment types, holding several 3rd pillar accounts offers additional flexibility in managing your payments. This flexibility can be particularly useful for adapting your savings strategy according to changes in your preferences or the performance of your investments.
With several 3rd pillar accounts, you have the flexibility to adjust the amount of your payments on each account over time. For example, if one of your 3rd pillars performs better or better matches your personal goals or values, you could choose to increase your contributions to that specific account.
Conversely, if an account no longer meets your expectations, whether in terms of performance or satisfaction with the services offered, you can reduce your payments to this account without interrupting your overall savings. You can thus redirect your funds to the account (s) that seem the most promising or secure to you, according to your assessment and your investment strategy.
Optimizing the tax when withdrawing capital from the 3rd pillar 3a
One of the significant advantages of holding several 3rd pillars lies in fiscal optimization when withdrawing funds. This strategy can be particularly advantageous when it comes to minimizing the tax on the withdrawal of capital from the 3rd pillar 3a.
When you have a single 3rd pillar 3a account, the capital is withdrawn all at once, resulting in substantial taxation on this total sum. On the other hand, if you have spread your investments across several 3rd pillars, you have the opportunity to withdraw this capital at different times. This approach allows you to spread the tax burden over several years, instead of concentrating it in one, minimizing the tax you pay at the time of withdrawal.
In practice, for a 3rd pillar linked to 3a, the regulations allow you to withdraw funds five years before the legal retirement age up to five years later. This flexibility offers a window of about ten years to plan and distribute your withdrawals in a way that minimizes the tax impact.
Consult our article on the taxation of capital at the time of withdrawal in order to find out more.
How many 3rd pillar 3a accounts are ideal to open?
Determining the ideal number of 3rd pillar 3a accounts to open is a question that does not have a single and definitive answer, as it depends intrinsically on your personal situation, your financial goals and your medium and long-term projects.
The decision to have two, three, or even more 3rd pillar accounts must be made taking into account several factors. In particular, taxation related to capital benefits can vary significantly from one canton to another in Switzerland. Some cantons also have specific rules regarding the number of capital withdrawals you can make. It is therefore important to find out about the regulations and practices in force in your canton of residence before planning your withdrawals.
Generally, starting with two 3rd pillar contracts is an advantageous and safe approach. This configuration allows you to benefit from the advantages discussed above, such as diversification and tax planning, without over-optimizing your 3rd pillars.
It is essential to emphasize that the opening of additional accounts should be aligned with an overall strategy and should not be done arbitrarily. Each additional account should add value to your financial planning. To determine the most appropriate strategy, it is strongly recommended that you consult a pension advisor who can analyze your personal situation and guide you to the most relevant choices to optimize your benefits.
