Save money by contributing to the third pillar!

The Christmas decorations in shop windows remind us that the end of the year is near! By contributing to your 3rd pillar, you are not only saving for your retirement, you are saving taxes too!

Paying into your 3a pillar plan is worthwhile. By contributing to a private 3rd pillar retirement savings plan, you are assuring yourself added quality of life.  The Swiss social security system is a three-pillar system: the first pillar consists in the national social security benefits (AHV/AVS), the second pillar in the occupational pension plans, and the third pillar in private retirement savings plans with (3a pillar) and without (3b pillar) tax advantages. These tax advantages should be used.

Transfer your payment before the end of December to reduce your tax bill

In addition to being an active way to save for retirement, 3a pillar plans offer several other advantages. Employees and self-employed persons who are members of an occupational pension fund may pay up to CHF 6,682 on to a 3a pillar account in 2011 and deduct their payment from their taxable income. Persons subject to AHV/AVS contributions who are not members of a pension fund may pay up to 20% of their net income into a 3a pillar plan, up to a maximum limit of CHF 33,408.  Both capital and interest earned on tied 3a pillar accounts are tax exempt until the retirement savings capital is cashed in. The higher a taxpayer's tax progression bracket, the greater his savings.

To ensure that your contribution can be deducted in your 2011 tax declaration, the payment must be credited to your account in December at the latest. Together with your year-end statement of account, you will receive a tax certificate to attach to your 2011 tax declaration.

You can save several times if you have several 3a pillar accounts

If you do not already have a 3a pillar account, you can open one with your next payment. Even if you already have one or more 3a pillar accounts, it might be worthwhile opening another. You can thus cash in your 3a retirement savings capital in several stages when you take your retirement. You may hold up to five 3a pillar accounts. By cashing in your 3a retirement savings account by account, you can save a second time by taking advantage of the lower tax progression bracket.

3a pillar accounts offer an attractive interest rate

Funds invested on a 3a pillar account earn interest at a significantly higher rate than funds on a normal savings account. Liberty Foundation for 3a Retirement Savings currently pays 1.8% p.a. interest on its retirement savings accounts, compared with 0.5% p.a. on normal bank savings accounts. Depending on the inflation rate, savers are losing money with such rates.

Put aside more savings capital thanks to compound interest and smart securities investments

Retirement savings paid into 3a pillar accounts are usually invested for decades. The compound interest effect is significant, which is why it is advisable to start paying in early. It might also be worthwhile to opt for one of the many securities solutions – especially with a long-term investment horizon. With Liberty Foundation for 3a Retirement Savings you can do this from your first franc of savings.

A pension plan even if you are unemployed

If you lose your job and are unemployed, you can continue to pay into your private pension plan. As long as you are drawing unemployment benefits, you are insured with the Substitute Pension Plan. This includes death and disability coverage. You can pay CHF 6,682 onto a 3a pillar account and deduct the amount from your taxable income.