Pillar 3a to do or not to do, that is the question

Banks, Insurances & Third Pillar
1

Hello everyone, first of all I hope you had a great Christmas and you are enjoying your holidays time (if that’s the case).

I’m living in Switzerland since 2016 and started early 2021 investing in VWRL. I’m now considering of opening a pillar 3a account to optimize my taxes, however it is not yet clear for me if I will stay in Switzerland until my retirement age and therefore I have been holding my decision of opening a pillar 3a account, as in case I leave Switzerland I would need to pay taxes on the withdrawal amount. Also, people told me that a pillar 3a account would be only worth it if I stay in the country long term.

I thought Mustachians could help me clarifying this topic, as maybe some of you might have been in the same dilema.

  • Do you know how much taxation applies on early withdrawal?
  • Since I don’t know yet if I will stay in Switzerland for a long-term, would I be better off just investing in stock market without pillar 3a account?

I truly appreciate your inputs and I thank you right away for the discussion.

Wish you all a happy new year.

2

here you go:

https://forum.mustachianpost.com/t/permit-b-no-more-pillar-3a/7563/25

Basically the same question - from the day before yesterday (though I realise the B permit in the title may be slightly misleading. Whether you have a B or C is rather irrelevant though going forward - except that it may in some instances impact your income tax rate).

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When will you get the C permit?

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The taxes are the same whether you withdraw early or later, they are based on the canton in which the foundation is located. Canton Schwyz has the best rates.

Depends on your marginal tax rate. If you invest your pillar 3a in 100% equities as well, it will be hard to beat it with your own investments, because you a) don’t pay taxes on dividends in 3a and b) save taxes of CHF 500-1500 a year depending on your marginal tax rate.

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Thank you I will have a look!

I have already C permit since 2021 :slight_smile:

That’s why I was considering the pillar 3a, however people told me that if I leave Switzerland I would be “penalised” by withdrawing the money and that therefore pillar 3a would only be worth it if I’m sure I will stay long enough in the country. Maybe I was misinformed as I can’t find any information regarding this…

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Beware though, there is a common misconception about withholding tax on pension benefits:

  • Swiss residents do not pay withholding tax - but will be taxed in their canton and municipality of residence
  • For non-residents withholding tax will be withheld upon payout, according to the domicile of the Swiss foundation that is paying out. But they will (in many countries) have to pay local taxes in their new/foreign country of residence. And yes, that’s in addition to Swiss WHT. However, if you do, the Swiss withholding tax will usually be refundable, provided an applicable double taxation agreement exists.
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Thank you for the clarification. I was not aware that one can refund the withholding taxes with a double tax agreement. To be honest I did not research it enough as I’m planning to stay here :slightly_smiling_face:

But my statement is still true that the tax rate doesn’t change wheter you stay short-term or long-term.

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Then I would start paying the maximum. You still have enough time to open up an account with Viac and transfer the funds.

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This is exactly my concern. I thought if I would do an early withdrawal I would have to pay a certain amount “penalty” which therefore would not compensate in the end to have a 3a account, for short term. Though, I cannot find any information regarding this early withdrawal fees

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There’s no penalty for early withdrawal of a 3a savings or 3a investment account. There is only an early withdrawal penalty if you make a 3a life insurance (which I and everyone else here would absolutely not recommend).
In a 3a life insurance contract, part of the premium you pay goes into a risk part and part is for the insurance broker, often you need to pay for 3-5 years before you break even. There are a lot of topics here on the forum of other members who fell for this trap.

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Does anyone knows if one goes abroad and remove all the pillar 3a money, he/she cannot return ever to work in Switzerland, or can he/she return but everything would start from scratch (e.g. Permit etc)?

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You loose the permit if you move abroad, but you may apply to maintain it for up to four years I believe. Your canton will probably have the form online, something to consider before you move since they may not remind you. But I don’t see how this is connected in any way to your 3a account(s), these are completely different affairs.

I’m not sure where your concern comes from to be honest. 3a are pretty flexible, in theory you could pay in today and leave Switzerland next month and still get the tax bonus. If somebody mentioned a ‘penalty’ to you, they may have had the 2nd pillar in mind that has some special rules (3 years post ‘Einkauf’). Or, as mentioned by others before, if you have some insurance product instead of a straightforward 3a account.

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The condition for withdrawal, be it pillar 2 or 3a is that you leave Switzerland for good - as in: You at least intend not to return in the foreseeable future.

Now, if you explicitly declare to maintain your CH residence permit (for a limited time) after a move abroad but withdraw your pension benefits, that would be an abuse.

If, however, your life circumstances change unexpectedly and make you return to Switzerland, there’s nothing preventing you from doing so (though yes, you’ll probably have to apply for a new permit and may be subject to immigration restrictions).

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