When Can I Withdraw Swiss Pillar 3a Savings?

Buying a home, becoming self-employed, leaving Switzerland: In this guide, online comparison service moneyland.ch explains the conditions for making early withdrawals from tax-privileged pillar 3a retirement savings.

When can I withdraw money from the pillar 3a?

Normally, you can only withdraw pillar 3a assets when you reach retirement age. The earliest point at which the money can be cashed out is five years ahead of OASI retirement age. As long as you continue working, you can put off withdrawing pillar 3a savings for up to five years after you reach the standard retirement age. Withdrawals made for retirement in keeping with these rules are standard withdrawals. But it is also possible to withdraw money from the pillar 3a long before you reach retirement age.

When can I make early withdrawals from the pillar 3a?

Early withdrawals can only be made in very specific circumstances or for certain specific purposes. These conditions are laid out in Swiss laws, and apply regardless of which service provider you use for your pillar 3a. You can make early withdrawals for the following reasons:

• Home ownership

You can withdraw money from your pillar 3a for the purpose of buying your own apartment or house. That also applies to buying a share of a co-owned property (shares in a housing cooperative, for example). You can also make early withdrawals to make mortgage repayments, or to pay for renovations or value-increasing alterations to your existing home. The primary requirement is that the property in question is your primary residence. Secondary residences, investment properties, and vacant building land cannot be purchased using pillar 3a retirement savings.

When you withdraw pillar 3a assets for home ownership, you have the option of withdrawing just part of your account balance. That differentiates home ownership withdrawals from standard withdrawals at retirement, for which you have to cash out a pillar 3a account in full.

It is also possible to pledge your pillar 3a assets as collateral for a mortgage. That is not the same as an early withdrawal, because the money remains in the pillar 3a.

• Self-employment

When you become self-employed, or are already self-employed but move to a completely different kind of business, you can withdraw pillar 3a savings early. That could be beneficial if, for example, you need money to finance your new business and do not have sufficient capital from other sources.

Whether or not you are considered to be self-employed depends on which kind of company you have. When, for example, you establish a corporation (AG) or limited liability company (GmbH), you are considered to be an employee of that company, and do not have a right to early pillar 3a withdrawals. But you can first become self-employed and withdraw your pillar 3a savings, and then convert your company into a corporation at a later date.

Important: You can only make early withdrawals when you begin a new self-employment. If you have already been self-employed for some time, you generally are not entitled to make early withdrawals. You have to request the withdrawals within one year of becoming self-employed. After that time limit, you are no longer eligible to make early withdrawals. You cannot make withdrawals until you have been registered as self-employed at a social security office.

• Closing gaps in your pension fund

If you are employed and have a Swiss occupational pension fund (pillar 2), you can make early withdrawals from the pillar 3a in order to close gaps in your pension fund benefits. This can be beneficial if, for example, you do not want to invest your pillar 3a savings, and your pension fund pays higher interest than what you could earn using a pillar 3a savings account.

Making voluntary, extra contributions to your pension fund is only possible if there are gaps in your benefits. Gaps may result when, for example, your employer raises your salary. From that point on, you normally pay higher pension fund contributions based on your new salary. In this case, the gap is made up of the difference between the benefits you should have based on your new salary, and the actual (lower) benefits you have based on your old salary. You have the right to make voluntary payments to your pension fund until your benefits are as high as they would have been had you received your new salary from the start.

Temporary breaks from employment – for education, family reasons, or travel, for example – are another frequent cause of pension gaps. Gaps can also result when you change employers and your new employer’s occupational pension fund has higher benefits than your last one.

But if you have enough other money available (in a savings account, for example), it can make more sense to use that money for voluntary pension fund contributions instead because the contribution will be tax deductible. When you transfer pillar 3a savings to your pension fund, on the other hand, there is no tax benefit (you do not pay tax on the withdrawn amount, but you cannot claim a tax deduction for the pension fund contribution).

Disability

If you receive a full disability pension from Swiss social disability insurance (DI), you can withdraw your pillar 3a savings early. An additional limitation is that you cannot withdraw pillar 3a savings if you have an additional, private disability insurance (such as disability coverage bundled with a term life insurance).

• Leaving Switzerland

You are allowed to withdraw pillar 3a savings after you move your residence from Switzerland to a different country. Unlike occupational pension fund benefits, for which different rules apply depending on which country you move to, pillar 3a savings can be withdrawn no matter which foreign country you take up residence in. Important: Cross-border workers – people who live in neighboring countries but work in Switzerland – cannot withdraw pillar 3a benefits on account of living in a foreign country.

When you withdraw pillar 3a savings early after leaving Switzerland, a Swiss withholding tax is deducted before the money is paid out. The size of this tax varies depending on which canton the retirement foundation which holds your pillar 3a savings is registered in. Depending on which country you move to, you may be able to reclaim the Swiss withholding tax. But if you move to a country which does not have an eligible tax agreement with Switzerland, then transferring your pillar 3a assets to a retirement foundation in a canton with a low withholding tax can save you money. Currently, the canton of Schwyz has the lowest withholding tax for pillar 3a relocation withdrawals.

How can I apply for an early pillar 3a withdrawal?

Contact the financial services provider which manages the pillar 3a savings that you want to withdraw. You normally have to fill out and submit one or more forms before the money can be paid out. The additional documents required for the kind of withdrawal you are making will be listed on the forms. For example, when you make a withdrawal to buy a home, you have to submit a copy of the property purchase agreement. To make a withdrawal after becoming self-employed, you have to include a confirmation of your self-employment from the social security office.

Can I withdraw money from the pillar 3a at any time?

No. You can only make early withdrawals from the pillar 3a once every five years, even if you meet the criteria explained above.

Do I have to pay taxes on money I withdraw from the pillar 3a?

Money becomes taxable when it is withdrawn from the pillar 3a. That is true for both early withdrawals and standard withdrawals at retirement. The service provider which manages your pillar 3a assets notifies the tax office when you make a withdrawal. Exception: When you use pillar 3a assets to close gaps in your occupational pension, your pillar 3a savings are transferred directly to your pension fund. You do not pay tax on this withdrawal. However, the money will become taxable when it is paid out by your pension fund in the future.

Savings withdrawn from the pillar 3a are taxed separately from the rest of your income, and at a much lower rate. The exact same retirement capital withdrawal tax applies regardless of whether you withdraw early or at retirement age.

If you live outside of Switzerland when you make a withdrawal, then a withholding tax applies instead. Which tax rate you pay depends on which canton the retirement foundation is domiciled in. You may be able to claim reimbursement of this money. You may also have to tax the money in the country you live in.

What would happen to my pillar 3a savings if I die?

In the event of your death, your pillar 3a savings will be paid out to your legal heirs. In Switzerland, there is a law which dictates who inherits these retirement assets. If you have a spouse (including registered partners), that person will inherit all of your pillar 3a savings. If you are not married or in a registered partnership, then you have some say in the inheritance process. The standard order in which pillar 3a assets are inherited when you do not have a spouse is as follows:

1. Your children. A non-spouse partner is also eligible if they have lived with you on an uninterrupted basis over the five years leading up to your death, has to provide for one or more dependent children you had together, or supported you substantially in life.
2. Your parents
3. Your siblings
4. Other legal heirs

You can decide ahead of time which entitlements the people under point 1 will have if you die. You can also decide in which order your parents, siblings, and other legal heirs inherit your pillar 3a savings, and how big their individual entitlements should be. If you want to make special arrangements, you have to inform your pillar 3a service provider ahead of time. If you do not, then the standard order of inheritance will apply.

More on this topic:
How to choose the right pillar 3a retirement saving solution
Compare pillar 3a retirement savings accounts now
Compare pillar 3a retirement funds now
Guide to using pillar 3a retirement savings accounts