3rd Pillar Specialists
Third Pillar 2023, maximum amounts, taxes and social insurance
Persons affiliated to a pension fund (generally employees): can make maximum contributions for the year 2023 of CHF 7'056 /year. Those who are not affiliated to a pension fund (generally self-employed): they can make contributions of 20% of their income, but up to a maximum of CHF 35'280/year.
What is the third pillar and who should subscribe to it?
The third pillar is one of the components of the Swiss social security system, along with the first and second pillars. The first pillar represents state provision, is compulsory for everyone living in Switzerland, and is made up of AHV (Old Age and Survivors' Insurance), IV (Invalidity Insurance) and IPG (Compensation for Loss of Earnings) and is intended to guarantee a minimum subsistence level. The second pillar represents occupational pension provision and consists of the BVG, occupational and non-occupational accident insurance, daily sickness benefits insurance and vested benefits institutions. In the collective ideal, it should be able to keep the beneficiary's standard of living unchanged from when he or she was working. But the reality is quite different since, between the first and second pillar, those with full contributions would reach retirement with about 60% of their last income. That is why the third pillar is worthwhile and highly recommended.
Is it better to have an insurance third pillar or a banking third pillar?
Choosing between an insurance third pillar or a banking third pillar depends, above all, on the purpose for which we do it. We can say that the most important difference between a bank and an insurance lies in what is called 'waiver of premium in case of disability'. This cover, typical of insurance companies, means that in the event of disability, the insurance company pays the premiums in your place until the end of the contract (i.e. until retirement age). A concrete example: Mr Rossi, aged 30, starts today paying CHF 3,000/year with a banking third pillar, while Mr Bianchi, also aged 30, pays CHF 3,000 with an insurance third pillar. Since there are 35 years to go until retirement, we can say that both should arrive at age 65 with a capital of approx. CHF 105,000 (not counting interest, surpluses, etc.). But what happens if they both become disabled only after, say, 7 years? Mr Rossi, who has paid his banking third pillar for 7 years, will receive CHF 21,000 (plus interest) when he retires. Mr. Bianchi, on the other hand, who paid his insurance third pillar for 7 years, will receive CHF 105,000 (plus surplus evv) when he retires. This big difference is produced by the waiver of premium payments. This is why, for those who still have many years ahead of them until retirement, the insurance third pillar, or a mix of insurance and banking third pillar, may be the right choice.
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