3rd Pillar

Difference Between 3a and 3b in the Third Pillar

The 3a and 3b plans in the third pillar are the restricted and unrestricted pension plans. For 3a, there is a limit to how much money you can deposit along with higher interest rates. And for 3b, there is no limit on deposits, and you get no return on the taxes you pay on it.

3a – Pillar
Under the 3a pillar, you have a set amount of money you can deposit each year. But that amount is deductible from your taxable income. So this gives you the advantage of saving extra income each year.

• You can pay a maximum amount every year into your account. The amount differs depending on whether you are an employee or self-employed.
• The deductible amount from your taxable income gives you an advantage in savings.
• Since the amount you can deposit is limited, you can get higher interest rates on it than a simple savings account.
• The process of withdrawing money under this pillar is more strict than 3b, and you will have to pay a one-off tax to withdraw it under those conditions.

3b – Pillar
The 3b pillar is much more flexible compared to 3a. This is because the only tie you have on this kind of saving with taxes is that you have to declare it. Beyond that, you can save however much you want and with more flexibility.

• The 3b pillar relies on an institution like banks or insurance companies, and you can deposit with flexibility under those institutions’ terms.
• You have to mention how much you are saving under 3b in your tax documents annually.
• You can withdraw from this fund according to your needs and under the policies of the bank or insurance company, without any additional tax or restrictions.
• This fund is taxable every year by the government.

Which is Better for the Third Pillar – Bank or Insurance?

There is much debate about which form of deposit is better for your third pillar savings. Banks can give you the flexibility with deposits that you would need with an unstable income. And insurance companies can give you security and stability when you have dependents and are concerned about accidents. So, which one is better?

Bank
The bank deposit system will work for you best if you have no dependents or are saving for yourself. While this allows you the flexibility to deposit, when possible, the lack of discipline can cost you a bit when it comes to the time of withdrawal.
If you have the trust in yourself to set and make payment deadlines on your income each month or year, banks would be the way to go. Again, the bank will not be relative to the fluctuations in the current financial market. As an added advantage, you can get a deposit guarantee in the case of bankruptcy up to CHF 100,000.

Insurance
Insurance is the safest and more reliable option between the two because of the security element as well as the steady pace of saving. If you have dependents and are looking to customize how the security of your funds should be—insurance is the best option.

If you put your third pillar income into a trusted insurance fund, you can get a handful of advantages. These are not limited to the following, but these are the best benefits.

• The funds you deposit can be customizable. This means you can split your premiums into two sections. One can get exposure to market fluctuations and you can profit off of them. And the other one is completely secure under the company’s policies till you wish to withdraw it.
• Compared to the bank, you can get a guarantee on deposits in the event of bankruptcy. This gives 100% of how much you deposited under the secure fund. And on the exposed fund, the guarantee applies to the market price of the units at that moment.