Optimize your taxes with pillar 3a when building up your wealth

Pillar 3a is known to be a tool for tax optimization. The government deliberately promotes personal pension provision with tax incentives. Those who know the rules get more out of it.

Anyone who earns income subject to AHV contributions in a calendar year can pay into pillar 3a. The income that falls under this category is explained in the separate box at the end of the blog.

Of course, nothing comes for free. The term «restricted retirement provision» refers to the price you pay for tax relief: In principle, the money saved in pillar 3a can only be withdrawn before retirement. However, the legislator has relaxed this rule with various exceptions. For example, you can use your 3a money to buy real estate. The condition is that you live in it yourself.

3a-maximum amounts for employees, self-employed persons, and married couples

Employees, as well as self-employed persons with a pension fund (and recipients of daily unemployment insurance benefits), can pay a maximum of 7'258 francs per year (as of 2025 and 2026) into pillar 3a. This maximum amount corresponds to eight percent of the so-called upper limit, which separates the mandatory BVG from the non-mandatory in the Swiss pension fund system. Whenever the Federal Council adjusts this limit, currently 90'720 francs, the maximum amount for contributions to the third pillar also changes.

The annual tax savings are often underestimated: let's take a fictitious example. Ms. Brunner lives in Zurich, is employed and earns 120'000 francs. Let's assume she is unmarried and non-denominational. If she pays the full 7'258 francs into her pillar 3a, she reduces her tax bill by 1'645 francs. So you could say that she receives an «immediate return» of 22,7 percent on her current consumption sacrifice. This is not entirely accurate, as she will have to pay tax on her 3a pension capital later when she withdraws it, but at a reduced rate. We will come back to this later.

Even higher deductions for self-employed persons

Anyone who is gainfully employed but, like some self-employed persons, is not affiliated with a pension fund can pay up to 20 percent of their annual net income into pillar 3a, up to a maximum of 36'288 francs (as of 2025 and 2026) per year. While the normal 3a deduction is limited to eight percent of the upper limit, as mentioned above, the maximum for this «large 3a deduction» is 40 percent of the upper BVG limit, which currently stands at 36'288 francs.

What if I forgot to make payments into pillar 3a?

When you are young, you may not be in the mood to save, or you may be investing everything in your family or your own business. Sometimes you simply forget to make payments into pillar 3a.

Since the beginning of 2026, it has been possible to make back payments for missed calendar years. The conditions are that you are employed in Switzerland, have income subject to AHV contributions, and have already paid in your full personal maximum amount for the current year. In other words, if you are self-employed and not affiliated with a pension fund, you must first fully utilize your large 3a contribution potential for the current year.

Regardless of whether you are employed or self-employed, back payments are only possible up to the amount of the «small 3a deduction». This basically includes missed contributions from the last ten years. However, as the change in the law was only introduced in 2025, it only applies to contribution gaps from 2025 onwards; older gaps cannot be closed. There are also a number of other restrictions.

Reduce wealth taxes

Unlike deposits, the savings accumulated in a pillar 3a retirement savings account do not have to be declared in your tax return. Like occupational pension assets, they are not subject to wealth tax.

And wealth tax is often underestimated. It is entirely realistic to save up assets of 800'000 francs or more in a 3a securities account. A single person with the same amount in free assets would have to pay annual wealth tax of 4'809 francs in Lausanne, 4'212 francs in Basel, 3'329 francs in Geneva, 2'995 francs in St. Gallen, and 2,950 francs in Bern. A Zurich resident would get off relatively lightly at 1'419 francs, but should not rejoice too soon. This is because the progression of Zurich's wealth tax is particularly steep in the high six-figure asset range.

Interest and dividend income in pillar 3a is also tax-free. This means that it is not subject to income tax. As part of the accumulated capital, it is only taxed when the capital is withdrawn.

Transfers of 3a funds to another pension fund are tax-neutral and usually free of charge and can be made at any time. For example, anyone who is dissatisfied with the interest income (which was in the per mille range in 2025) on their 3a account can easily transfer their pension funds to another provider in order to invest in a securities portfolio that is likely to generate better returns in the long term.

What to consider when withdrawing funds from pillar 3a

Ordinary withdrawal of 3a funds is possible at the earliest five years before reaching retirement age. For men and women born in 1964 or later, this is 65.

A capital gains tax is payable when withdrawing pension funds. Depending on the canton, this is also referred to as capital withdrawal tax, capital payment tax, or capital settlement tax. In any case, it is a separate tax that is levied independently of ordinary income tax and is subject to a significantly lower rate.

As a rough rule of thumb, you can assume that municipal and cantonal taxes together account for around five percent of the amount paid out. This figure is higher in locations with unfavorable tax regimes or for very high payments.

For example: Mr. Keller is single, lives in Zurich, and receives pension capital of 800'000 francs. The city taxes him 33'130 francs and the canton 27'283 francs, which together amounts to almost 7.6 percent of the sum withdrawn. The Federal Tax Administration also charges 18'400 francs – less than the local authorities. The situation is similar in other large cities such as Basel, Bern, Geneva, and Lausanne.

The situation is reversed in some smaller cantonal capitals. Ms. Manser receives the same amount in Appenzell. The city charges only 8'960 francs, while the canton of Appenzell Innerrhoden charges 15'360 francs. In this case, the local tax authorities are more modest than the Federal Tax Administration. The same applies in Altdorf, Chur, Schaffhausen, and Stans.

So while the tax burden can vary greatly from canton to canton, the federal government always taxes pension payments at one-fifth of the ordinary income tax rate.

This means that the progression of the national capital gains tax becomes particularly steep for withdrawals over 120'000 francs. A 3a solution with several accounts and as even a possible staggering of payments can help to remedy this situation.

Staggered withdrawal is key

Taxation on withdrawal depends primarily on the amount and place of residence, as well as marital status and religion.

In any case, it is worthwhile to withdraw pension funds in stages, i.e., in different tax periods. This approach avoids peak tax rates, thus breaking the tax progression when withdrawing funds. To do this, it is necessary to ensure forward-looking structuring when making payments by saving in several accounts.

Modern providers do this automatically. True Wealth, for example, opens a 3a account for each year of deposits, up to a maximum of five accounts. In the sixth year of deposits, the first account is credited again, then the second, and so on.

It is also important that the withdrawal of 3a funds does not fall in the same year as the withdrawal of pension fund or vested benefits. Married couples should withdraw their pension funds in different calendar years if possible. If they are the same age, the corresponding planning is challenging.

Place of taxation

Important: Capital withdrawals are taxed at the place of residence where the taxpayer had their center of life at the time of payment. This means that the cut-off date principle, which is otherwise standard in taxation and according to which the domicile on December 31 would be decisive, does not apply. So anyone who lives in Herisau (AR), which is unfavorable from a tax perspective, withdraws pension funds in the summer and moves to Appenzell (AI), which is favorable from a tax perspective, in the fall cannot optimize their taxes in this way.

Does the lump-sum withdrawal have to be reported in the tax return? Since every 3a provider must report lump-sum withdrawals to the Federal Tax Administration (FTA), which then informs the cantonal authorities, one might assume that lump-sum withdrawals from the third pillar do not have to be declared. Nevertheless, the retirement capital withdrawn must be declared in the regular tax return. This makes the sudden increase in free, taxable assets easier for the tax authorities to track.

Political developments

Tax rates reflect the political balance of power and, as we know, can change at any time. The capital gains tax levied on pension withdrawals is no exception. Quite a few members of parliament would like to see this tax increased.

On the other hand, there is the prospect of additional leeway in pillar 3a. Recently, the National Council and Council of States approved the motion «Enable partial withdrawal of pension funds» by FDP National Council member Andri Silberschmidt. The ball is now in the Federal Council's court. Until the relevant law is actually amended, it is advisable to save in several accounts during the accumulation phase.