3rd pillar funds are generally intended for your retirement, however, it is possible to withdraw them earlier under certain legal conditions. What are the criteria for early withdrawal from your 3rd pillar? In addition, the withdrawal process, whether it concerns the 3rd pillar 3a or 3b free, involves specific tax rules. Find all the answers to your questions in our article.
The “ordinary” withdrawal from your 3rd pillar
With a 3rd pillar 3a, It is at retirement age that you can access the savings you have accumulated in your 3rd pillar. During your savings period, contributions are deductible from your taxable income, within the limits set by law. And at the legal retirement age, you can withdraw your savings, plus interest, either in full or in the form of an annuity. The main purpose of your 3rd pillar benefits is therefore to strengthen your retirement income, in addition to the first two pillars.
For the 3rd pillar 3b free, the rules are more flexible, you set the date on which you plan to withdraw your capital yourself. But be careful, if you decide to withdraw your funds very early, additional fees will be applied to your contract. Indeed, the cash value at the start of the contract may not be favorable, especially in the early years. It is advisable to consult the cash value table that your insurer will provide you with. This value is often modest over the first ten years and does not necessarily reflect all of your savings, but it increases gradually over time.
The legal conditions for early withdrawal or termination of a 3rd pillar
You could find yourself in a situation where it is necessary to access the savings built up in your 3rd pillar prematurely, whether it is pillar 3a or pillar 3b. The law provides for various reasons that allow the early withdrawal of these funds, whether for pillar 3a or for pillar 3b.
Conditions for withdrawing or terminating the 3rd pillar linked to 3A:
Acquisition of real estate
This is a common reason for early withdrawal from the linked 3rd pillar. You can use the capital from your 3rd pillar 3a as a contribution to buy or build a main home. You can also use your 3rd pillar as collateral for indirect amortization. Early withdrawal for these reasons is possible every five years and can thus be used as a personal contribution, to repay a mortgage or to acquire property shares.
Departure from Switzerland
If you plan to leave Switzerland permanently, you can withdraw all of your 3rd pillar 3a. Simply present your notification of departure from your municipality. Note that contrary to the withdrawal conditions of the LPP, early withdrawal is also possible if you move to a country in the European Union.
Transition to self-employed status
Are you thinking of becoming self-employed? If you need capital to get started, you can withdraw your 3rd pillar 3A. This also applies if you change your sector of activity as a self-employed person. You will need an AVS certificate to confirm your status and the funds will be transferred to the bank account you have chosen.
Pay attention: for an early withdrawal, it is essential to be recognized as self-employed by the AVS. Starting a business, such as a limited liability company (SĂ rl) or a public limited company, does not allow you to withdraw your capital early, because you de facto become an employee of your own company. In this case, the AVS does not consider you to be self-employed. It is also important to know that this withdrawal is only possible one year after starting your activity as a self-employed person.
3rd pillar change
If you want to change the 3rd pillar to benefit from better conditions, you can transfer your funds to a new savings account or insurance without incurring losses or taxes, with a certificate from your new financial institution.
Filling the gaps in the 2nd pillar
To fill contribution gaps in your 2nd pillar, you can use your 3rd pillar 3a to buy back years of occupational pension provision. This transfer is free of tax consequences and must be carried out within an LPP pension foundation to which you are affiliated. Note that transferring to a vested benefits account or policy is not allowed.
In a situation of disability
If you receive a full disability pension, an early withdrawal from your 3rd pillar linked to 3A is possible, but the risk of disability should not be covered by your 3rd pillar, which is often the case in linked pension products offered by insurances. However, be aware that disability risk coverage can be modified or even abolished in your 3rd pillar if necessary.
Conditions for withdrawing or terminating the 3rd free pillar 3B:
The free 3rd pillar 3b is a savings product that you subscribe exclusively to an insurance company. Unlike pillar 3a, 3b offers flexibility in terms of withdrawal. When subscribing, you define the date for withdrawing your savings, which is clearly indicated in your insurance contract. This date marks the moment when you plan to recover the funds from your 3rd pillar 3b.
However, a particularity of pillar 3B is the possibility of withdrawing your funds at any time before the fixed date, without having to justify a particular reason for this early withdrawal.. It is important to note that if you opt to withdraw before the scheduled date, it is not the total amount you have saved that will be paid to you, but the cash value of your contract at that time. This cash value may be less than the total amount you invested, especially if the withdrawal is in the early years of the contract.
It is therefore essential to think carefully about the duration you set for your 3rd pillar 3b and the objective of this savings. The definition of these elements must be carefully considered because it directly influences the flexibility and profitability of your savings. In this context, the ideal is to seek professional advice to best align your savings strategy with your financial and personal goals, thus optimizing the benefits of your 3rd pillar 3b.
What is the tax when withdrawing from your 3rd pillar?
3rd pillar 3a
The capital accumulated in A 3rd pillar linked to 3a is subject to tax upon withdrawal. However, this tax is calculated at a preferential rate that varies according to your canton of residence and the amount you withdraw. The higher the amount, the higher the tax rate will be.
To benefit from lower taxation, it is recommended to spread out withdrawals by opening several 3rd pillar accounts and gradually withdrawing them over different calendar years.
However, it is crucial to be careful, as too many structured withdrawals can be interpreted by the authorities as tax evasion.
3rd pillar 3b
As for the capital of a free 3rd pillar 3b, it is not subject to tax upon withdrawal. However, the cash value of pillar 3b must be included in your annual wealth statement, which could influence your overall taxation.
Special case for cross-border commuters
Cross-border workers are required to declare the withdrawal of their 3rd pillar to the tax authorities in their country of residence. For withdrawals from a 3rd pillar 3a, it is necessary to request a retrocession of the tax paid, which may require a specific procedure depending on the tax agreements between Switzerland and the country of residence.
Read our article on 3rd pillar taxation to find out more.
What happens to the capital in the event of death?
Death marks the end of the 3rd pillar, and the accumulated capital is distributed to the beneficiaries in a precise order that the subscriber can partly modify. For the 3rd pillar linked to 3a, the funds are paid directly to the designated beneficiaries, without being included in the estate. This means that pension institutions have the right to transfer assets directly to specified beneficiaries, without prior consultation with legal heirs or fear of disputes. In addition, pillar 3a assets are protected in the event that the inheritance is subject to liquidation by bankruptcy offices following a repudiation. In some cantons, these amounts are also exempt from inheritance tax, thus offering a significant tax advantage.
For the 3rd free pillar (3b), you have the possibility to designate the beneficiaries according to your choice, which allows a certain autonomy in the management of your inheritance. Unlike the linked 3rd pillar 3a, the free pillar 3b offers more flexibility in the appointment of beneficiaries and the distribution of funds after your death
Conclusion: how to optimize the withdrawal of your 3rd pillar
Understanding the conditions and opportunities for withdrawing from your 3rd pillar is essential to maximize the benefits of this retirement savings. Whether for pillar 3a or pillar 3b, each option has its own rules, benefits and tax implications. Knowing the situations that allow an early withdrawal, such as the acquisition of real estate, the change of professional status, or even a permanent departure from Switzerland, allows you to plan your financial future wisely.
Consulting an advisor is not only a recommendation; it is a necessity to navigate the complexities of legal and fiscal provisions. A professional can help you structure your withdrawals to benefit from favourable tax rates, while avoiding potential pitfalls that could be interpreted as tax evasion. In addition, in the case of unexpected events such as a death, understanding how your capital will be distributed can ensure that your last wishes are respected and that your loved ones benefit from your pension without additional complications.
In summary, the 3rd pillar represents much more than just saving for retirement; it is a flexible financial tool that, when optimized with the help of professional advice, can significantly improve your financial security and that of your beneficiaries. By learning about withdrawal arrangements and engaging in smart planning, you maximize the potential of this valuable instrument to reach your long-term financial goals.
