Pension

Saving on taxes with Pillar 3a

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Interest rates at an all-time low and steadily rising life expectancy are placing a huge strain on the first and second pillars of the Swiss pension system. Falling conversion rates are reducing pension payouts. This makes it all the more important to start putting money aside in a private pension as early as possible. Pillar 3a is the ideal place to start. 

Anyone in paid employment can significantly reduce their tax bill by making voluntary payments into a Pillar 3a private pension. If they pay the maximum amount into Pillar 3a by the end of the year, they can save up to CHF 2,000 in taxes. 

Pillar 3a: pay in once and benefit twice

If you start paying in the maximum statutory amount every year from the age of 35, you can save around CHF 40,000 in taxes by the time you reach retirement. For the self-employed, it can be CHF 300,000 or more. 

Every franc you pay in is paid out when you retire and taxed at a special, lower rate. With questions being asked about the future of Swiss pensions, there’s no disputing that Pillar 3a makes good sense.

 

So how much could you save on taxes?

Everyone’s pension situation is different. Analyze yours together with an AXA expert to answer these questions: 

  • How much can you save on taxes with Pillar 3a?
  • What will your income be after retirement? 
  • How much will you get if you’re unable to work? 

10 tips for saving on taxes with Pillar 3a

  1. Fully utilizing the 3a limit is the simplest way to make big savings. A Pillar 3a account can be opened with a bank or insurance company. Both offer flexibility and returns. AXA also allows you to combine Pillar 3a with insurance to minimize risk for yourself and your family.
  2. Pension fund buy-ins: Voluntary pension fund buy-ins are also tax-deductible and are possible if you have a gap in pension coverage. Check your pension fund certificate to see if there’s a gap.
  3. Journey to work & meals: Whether by public transportation, bike or car – account for your travel costs between home and work. You can also make deductions if you have to eat or sleep away from home, generally in the form of flat-rate amounts.
  4. Continuing education & professional expenses: Training courses, specialist literature, clothing, equipment, and other job-related expenditure is tax-deductible as a flat-rate amount in many cantons without the need for proof.
  5. Home office: If you regularly use a private room at home for work purposes, you can deduct some of your housing costs from your tax bill.
  6. Paying taxes in advance: Some cantons offer a better interest rate than any savings account if you pay your taxes in advance. However, pay too late and you’ll incur an interest penalty of up to 6%.
  7. Debts: Debit interest on personal loans, credit cards, and mortgages is tax-deductible. Leasing costs can’t be deducted if you earn a salary.
  8. Medical expenses: Expensive healthcare costs – for dentistry, for example – are tax-deductible. The threshold is about 5% of net income, depending on the canton.
  9. Donations: Enclose the receipts with your tax return.
  10. Tax advice: It pays to talk to a tax expert. A free pension consultation can also yield valuable tips for optimizing your tax situation. 

Tax deduction limits for 3a

Tax deduction limits for payments into Pillar 3a by  December 31, 2020 at the latest:

  • Employees: CHF 6,826
  • Self-employed without pension fund: CHF 34,128

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