Tax optimisation on your pillar 3a with staggered withdrawals  

In addition to the main benefits of retirement planning or closing the pension gap, people often open up a pillar 3a to save on taxes. You benefit from tax savings while you are working, but what about when you withdraw the money?

Steueroptimierung mit dem gestaffelten Bezug der Säule 3a

Staggered pillar 3a withdrawal

If you make a withdrawal from your pillar 3a, you will be subject to capital gains tax. It makes no difference whether you use your pillar 3a at retirement age or beforehand, for example to buy your own home or start your own business. 

To keep the tax burden as low as possible when withdrawing capital from your pillar 3a, you can hold multiple 3a pillars and withdraw from them in stages. This means not withdrawing your entire 3a assets all at once, but staggered over several years. By law existing pillar 3a accounts may no longer be split, not even when making withdrawals at the time of retirement.

 

You are recommended to open an additional pillar 3a for assets of CHF 50,000 or more.

What you should know about staggered 3a withdrawals

The pillar 3a refers to tied pension assets, and can be withdrawn either at an early stage as part of purchasing an owner-occupied residential property, self-employment, emigration, receiving a full IV pension, or within 5 years of your normal retirement age. Anyone who remains gainfully employed beyond the normal retirement age may also postpone the withdrawal of their 3a assets. However, you must withdraw your credit balance no later than age 70 (for men) or 69 (for women).

 

Since capital gains tax is progressive, the percentage tax rate increases as the withdrawals of assets get bigger. It is possible to get round this by withdrawing pension assets over the space of several years.

 

The tax authority counts all pension withdrawals in a year together to calculate the capital gains tax. This means that any (partial) capital withdrawal from the pension fund or withdrawal from a vested benefits account is also added to a pillar 3a withdrawal. The sliding scale helps to reduce the total amount payable per year.

Example calculation

Starting position: a married man, resident in Zurich, non-denominational, withdraws CHF 440,000 from his pillar 3a. Assuming that he always pays in the current maximum amount of CHF 6,883 and has chosen the strategy with a 95% equity weighting. The choice of investment strategy has an impact on asset performance.

 

Case 1: If the withdrawal is made from only one pillar 3a, the tax burden is CHF 27,936.

 

Case 2: If the person holds five pillar 3a accounts, he can have the same total amount paid out over five years (starting at age 60). The tax burden spread over the four years amounts to CHF 20,570.

 

The staggered withdrawal therefore produces tax savings of CHF 7,366.

Cantonal differences

The tax practices regarding the withdrawal of pension assets are not the same in all cantons. Therefore, not all cantons apply progressive taxation of pension assets at the cantonal/municipal tax level.

Conclusion

  • Planning ahead pays off from a monetary perspective, and can make a noticeable difference to your wealth in old age.
  • Holding multiple 3a pillars involves a small expense, but the difference in tax burden is substantial. With frankly, you can open up to five pillar 3a accounts.

Reading suggestion

Schwiizerfranke is a Swiss financial blog that publishes practical articles on the topics of retirement planning and investing. Founder of Schwiizerfranke.com is Eric Marschall, who launched the platform in 2019 to help Swiss people with financial topics.

 

In his article "Pillar 3a withdrawal - staggered!" (German) you can learn more about the staggered withdrawal and its savings potential.

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