Pillar 3a: How to save twice as much tax
With the third pillar, you save on taxes. And not just when you pay in. If you know how, you can also save on the payout – often well over CHF 10'000.
Saving taxes with the third pillar: hardly anyone misses out on this when paying in. But there is also enormous potential for tax optimization when paying out. But only a few people take advantage of the opportunities.
But it would be worthwhile: Depending on where you live, you can generally save over CHF 10'000 – and in many places much more. We have calculated this in an example: In Basel it's over 21'000 francs, in Fribourg you can even save over 31'000 francs.
The differences between the cantons are enormous, but the following applies everywhere: a staggered payout over five years results in a significantly lower tax burden than paying out the third pillar in one go. We will show you exactly how much below.
The catch has always been: if you want to save tax by staggering your third pillar withdrawals, you need to set the right course early on. Whether you manage your third pillar with a bank or an insurance company, it was often a hassle. Many people shy away from the effort involved.
We now make it easy for you: True Wealth's Pillar 3a offers an automatic top-up and graduation feature. This not only ensures that you don't miss a single year of payments. It also ensures that your deposits are automatically distributed evenly across five accounts – ideal for a staggered payout.
But why can you actually optimize taxes so well with a staggered payout?
Progression – not just for income tax
The higher the income, the higher the tax rate. Most people are familiar with the principle of progression from income tax. Progression also applies to pension payments.
The tax on lump-sum benefits from old-age provision is called lump-sum benefits tax. It is levied by the canton, municipality, federal government and, in the case of church members, also by the church – i.e. by the same institutions as income tax.
The progression varies from region to region, as each canton and each municipality has its own rules.
In some cantons, there is no progression in the calculation of cantonal capital tax. However, the portion for direct federal tax is progressive in any case – and this always results in progression in total.
Capital benefits tax is payable at your place of residence when you receive your pension – unless you have moved within the canton.
- Capital benefits tax is particularly favorable in the cantons of Appenzell Innerrhoden, Nidwalden, Uri, Zug and Schaffhausen.
- Whether for large or small payouts: Appenzell Ausserrhoden is often the most expensive. Depending on the amount, Fribourg, Zurich and Ticino are at the bottom of the list.
So how much exactly does a staggered payout cost?
10'000 or 30'000 – how much tax do you save?
At the very beginning of this blog, we gave you some key figures. In most places you save 10'000 francs or more – in Fribourg it's even over 31'000 francs.
You can simulate your specific case with a calculator in just a few minutes. The best way to do this is to follow our example – and then adapt the data to your individual situation.
Let's assume that you have saved CHF 500'000 in your third pillar at the time of the payout. You can realistically achieve this sum if you:
- have made contributions for at least 30 of the approximately 45 years of employment
- have paid in the maximum permissible amount in each case
- have consistently invested in securities the entire time
What happens now when you retire – and have this sum paid out?
Let's run through two scenarios: In the first case, you receive the entire sum of CHF 500'000 in one go. In the second case, you choose a staggered payout over five years – and thus receive CHF 100'000 each year.
If you look at this table, you will notice: The cheapest and the most expensive places are not necessarily the same as for income tax. And the steepness of the progression can also vary greatly. Here are three examples:
- In Zurich, for example, the tax rates for capital withdrawals are comparatively high, even for small withdrawals. On the other hand, progression is flat here, and you only save just over CHF 8'000 with a staggered payout.
- In Fribourg, the tax rates for a small payout are exceptionally low, but much higher for a larger payout. The progression is steep, here you save over 30'000 francs through the graduated payment in our example.
- Appenzell Innerrhoden offers favorable tax rates for every lump-sum payment. In absolute terms, the tax is low. The progression is flat. If you stagger the withdrawal here, you won't make such a big difference compared to other cantons, but you will still save over CHF 12'000.
As you can see: It's worth taking a closer look.
Why five accounts?
The smaller the payout, the lower the tax rate – shouldn't you have as many accounts as possible? If you can break the progression – why limit yourself to five Pillar 3a accounts?
In theory, this is a good idea. In practice, however, there is a limit to the time during which retirement assets can be paid out. If you stop working at the age of 65, you can withdraw your pension assets for six years:
- in the year of retirement
- and in the five years before that
So if you retire at 65, you have exactly six years from the age of 60 to draw your pension. One of these six years is reserved for the payout of the second pillar, as a statutory payout ratio of at least 25 percent of the mandatory retirement assets applies to a lump-sum withdrawal.
The other five years therefore remain for the staggered payment of the third pillar. Five years, five accounts: This is the unanimous recommendation of all Swiss pension experts.
Attention spouses in a marriage: Make sure you don't inadvertently give away the savings potential from the staggered payments. The following applies to married couples: the payouts for both partners are taxed progressively. From a tax perspective, it is therefore most advantageous if the spouses do not retire in the same year. This allows them to spread their payments over more than just five years.
Save taxes for a lifetime with the automatic top-up feature
With True Wealth's Pillar 3a, you save taxes for life. The automatic top-up feature can help you do this if you wish: it ensures that you automatically do what is ideal when you pay in.
When paying in, it is important that you make the maximum contribution if possible, as this will save you income tax immediately. And that you distribute your payment optimally over five accounts, because then you secure the savings potential of the staggered payout for later.
With True Wealth, you can achieve this without having to worry about it yourself. Because the pension solution does it all for you:
- The automatic top-up feature automatically transfers money from your free assets to the third pillar if you have not yet made a contribution by the cut-off date at the end of the year.
- When you pay in, the automatic top-up system first directs part of the payment into the third pillar. If your payment is higher than the maximum amount permitted for tax purposes, the automatic top-up function invests the remainder in free assets.
Many of our clients appreciate the fact that at True Wealth we not only manage the portfolio with algorithms, but also the distribution between pension provision and free assets. Whether you use this automatic replenishment or not is entirely up to you.
Prepared for anything with True Wealth
If you are about to retire, there are only a few things you can do to optimize the taxes on your lump-sum withdrawal.
Are you married? Then make sure you plan together with your partner. Would you like to change your place of residence? Then think about whether it's better to do this before you retire or afterwards.
If you still have many working years ahead of you, you can pull out all the stops. It's best to set the right course for the third pillar as early as possible:
Invest in securities. With professional asset management, you can also expect good returns in the third pillar.
Don't miss a single payment. Income tax benefits are only available up to the maximum amount each year. The automatic top-up feature ensures that you don't miss any of it.
Keep five accounts of equal size. The automatic staggered distribution distributes your assets evenly across five accounts – ideal for a staggered payout.
With a Pillar 3a with True Wealth, these three recommendations are implemented automatically. And whatever happens in life – you are prepared for anything.
Maximum convenience and returns for your 3rd pillar. 0.0% management fee. Open an account via app in just a few minutes. Click here for Pillar 3a from True Wealth.