The Third Pillar, is it really convenient?

Is the third pillar really worth it? It is one of the questions we hear most often. The short answer is yes, for most people who work and pay taxes in Switzerland. The longer answer depends on what you expect from it: a tax saving, a retirement income, protection for your family, or all three. Let's look at the reasons, with numbers, and at the cases in which it makes less sense.

The Swiss pension system rests on three pillars. The first (AHV/OASI) guarantees a basic income; the second (BVG, the pension fund) is meant to maintain your previous standard of living together with the first. Taken together, they were designed to provide about 60% of your last income at retirement, and only if you have contributed without gaps.

In practice the gap is often larger. The maximum AHV pension in 2026 is CHF 2,520 per month for a single person, and the second pillar only insures the salary up to a certain limit. Those with higher incomes, part-time workers, people with career breaks or who arrived in Switzerland as adults can easily reach retirement with half of their last income, or less. The third pillar exists to fill this gap, voluntarily and with tax incentives.

Contributions to pillar 3a can be deducted from taxable income, up to a maximum set every year:

• CHF 7,258 per year (2026) if you are affiliated to a pension fund, which is the case for most employees;
• 20% of your net earned income, up to CHF 36,288 per year (2026) if you have no pension fund, typically the self-employed.

The saving depends on your marginal tax rate, that is, on your income, canton, municipality and marital status. As an indication, paying the maximum of CHF 7,258 saves:

Over 25 years, that is tens of thousands of francs that stay in your pocket instead of going to taxes. At withdrawal, the capital is taxed separately from other income and at a reduced rate; spreading withdrawals over several years can reduce this tax further.

Since 2026 it is also possible, under certain conditions, to make up for years in which you did not pay the maximum (starting with the gaps from 2025), which makes the system more flexible for those who could not save every year.

At this point the next question is: should I open my third pillar with a bank or with an insurance company? Both are legitimate, but they do different jobs.

A bank third pillar is a savings account or a fund deposit: you pay when you want and as much as you want (within the maximum), costs are generally low and you can stop at any time. But it only contains what you have paid in. If you can no longer pay, the savings stop there.

An insurance third pillar combines savings with risk cover, and this is what allows you to reach your goal whatever happens:

• Disability due to illness or accident: after a waiting period, the insurance company pays your premiums for you until retirement, so you reach the planned capital. Depending on the contract, it can also pay you a disability pension.
• Death: the insurer immediately pays a capital to the beneficiaries, even if only a few premiums have been paid.
• Flexibility: many products allow you to raise or lower the premium, and some provide for breaks in payments, for example in the event of maternity or unemployment.
• Protection of the capital: as a claim under an insurance contract, the death benefit is paid directly to the beneficiaries designated by law or by the contract.

The price of these guarantees is higher costs and a long-term commitment: in the first years the surrender value of an insurance policy is often lower than the premiums paid. That is why an insurance third pillar should be chosen with a horizon of many years, and compared carefully.

To be honest, there are situations in which it makes little sense, or in which other priorities come first:

• If you have little or no taxable income, the tax deduction brings little benefit.
• If you have no emergency reserve, it is better to build one first: pillar 3a money is tied until retirement, apart from specific cases such as buying a home or becoming self-employed.
• If you are close to retirement, a long insurance contract is rarely the right tool; a bank solution or a buy-in into your pension fund may be better.
• If you are about to leave Switzerland, it is worth checking first what happens to the third pillar in your case.

For most people who work in Switzerland, yes, and the sooner you start, the more it pays off: you save taxes every year, you build the capital that the first two pillars will not give you, and with an insurance solution you protect yourself and the people who depend on you financially.

Given the number of offers and products on the market, competent advice makes the difference between a third pillar that satisfies you and one that brings unpleasant surprises. Start by calculating your pension gap with our calculator, then book a free consultation to see which solution fits you.