In this article
Key points
- Second-pillar contributions and voluntary purchases are deductible from taxable income.
- Example: a CHF 10,000 purchase saves CHF 2,574 in tax in the year of payment.
- In 2025, pillar 3a lets you deduct up to CHF 7,258 (employees) or 20% of income, up to CHF 36,288 (self-employed).
- Cross-border commuters can recover part of their withholding tax by applying before 31 March.
In Switzerland, the three-pillar system provides financial security in retirement, but it also offers attractive ways to save tax.
This article compares the second pillar (occupational pension provision) and the third pillar (private pension provision), with the 2025 deduction limits and worked examples, for residents and cross-border commuters alike.
The tax advantages of the second pillar
The second pillar is mandatory for employees whose income exceeds a certain threshold. Employer and employee contributions are tax-deductible: they reduce taxable income.
Why make voluntary purchases into the second pillar
- Close gaps: a late career start, time abroad or another break in contributions.
- Optimise your taxes: every payment reduces your tax burden.
- Grow your capital and benefit from compound interest.
- Prepare for early retirement by improving your pension or capital.
- Benefit from extra-mandatory provision: purchases above the legal minimum increase your cover.
- Offset an advance withdrawal: for a home, to start a business, or after a division of assets on divorce.
Example: a CHF 10,000 purchase
Marc lives in Lausanne. He started a permanent job at 35 and paid no second-pillar contributions between 25 and 35. His net taxable income is CHF 70,000. With a ten-year gap, he can buy back up to ten years of contributions, depending on his pension fund’s regulations. He pays in CHF 10,000:
CHF 10,000 purchase into the pension fund
Table 1| Item | Amount |
|---|---|
| Purchase | CHF 10,000 |
| Tax saving in the year of purchase | CHF 2,574 |
| Net cost after tax | CHF 7,426 |
| Estimated capital at maturity (2052) | CHF 14,337 |
| One-off tax on the capital at maturity | − CHF 554 |
| Net capital after tax | CHF 13,783 |
| Net return after tax | 2.16% (gross equivalent: 2.91%) |
| Additional retirement pension | CHF 746 a year (assumed conversion rate: 5.20%) |
The purchase increases retirement assets and brings immediate tax advantages: a net tax saving of CHF 2,020, net capital of CHF 13,783 and a net return of 2.16% after tax.
The rules to follow
Before making a purchase:
- Check your pension certificate: the amount you can buy in and your current situation.
- Consult an occupational pension expert to assess feasibility in light of your situation and goals.
- Business owners: pay from a private account, not from a company account.
- Ask for capital projections to plan your retirement and compare scenarios.
- Take interest into account: the minimum rate is 1.25% on the mandatory portion; on the extra-mandatory portion, the return, which is not guaranteed, is around 0.5%.
Saving tax with pillar 3a
Tied third-pillar pension provision is individual and voluntary. The 2025 deduction limits:
- Employees affiliated with a pension fund: up to CHF 7,258 a year.
- Self-employed people without a pension fund: 20% of income, up to CHF 36,288 a year.
A major advantage: even on a modest income, you can pay in small amounts, from around CHF 100 to CHF 604 a month. Payments adapt to your needs and to the budget you have available for saving. The tax advantages:
- contributions fully deductible from taxable income;
- no wealth tax and no income tax during the savings period;
- reduced taxation on withdrawal, as in the second pillar.
Example: a CHF 7,000 pillar 3a payment
Marc has a net taxable income of CHF 70,000 and taxable wealth of CHF 50,000. He pays CHF 7,000 into his pillar 3a, reducing his taxable income to CHF 63,000.
Effect of a pillar 3a payment on income tax
Table 2| CHF | Current situation | After payment | Difference |
|---|---|---|---|
| Taxable income | 70,000 | 63,000 | − 7,000 |
| Cantonal and municipal tax | 10,215 | 8,621 | − 1,594 |
| Direct federal tax | 984 | 776 | − 208 |
| Personal tax | 20 | 20 | 0 |
| Total income tax | 11,219 | 9,417 | − 1,802 |
Lower taxable income also means a lower tax rate: Marc saves CHF 1,802 in tax in a single year.
Planning your pillar 3a well
- Analyse your pension provision before taking out a policy, with all your documents to hand.
- Define your goals: buying a home, moving abroad, early retirement, marriage, starting a business.
- Assess your needs in relation to risk: incapacity for work (illness or accident), death, old age as a couple, unemployment.
- Draw up an annual budget to set aside a share for savings and for covering these risks.
- Do not wait: once a risk has materialised, it is difficult to act.
- Rely on specialists who can propose solutions suited to your needs.
The advantages for cross-border commuters
Cross-border commuters who work in Switzerland and live in a neighbouring country can recover part of the withholding tax they have paid, thanks to third-pillar and, in some cases, second-pillar contributions, by submitting a request for a withholding tax correction to the cantonal tax authority.
Conclusion
The second and third pillars strengthen your retirement provision while offering excellent opportunities to save tax, all the more so with the 2025 limits.
For residents and cross-border commuters alike, pension planning is an effective strategy for optimising your tax burden.
Stefano Radaelli, Assidu
Investing in the third pillar and using the levers of the second lets you save tax today and prepare for tomorrow with peace of mind.
Legal basis: Federal Act on Direct Federal Taxation (Art. 33 para. 1 let. d DBG); Federal Act on the Harmonisation of Direct Taxes of the Cantons and Communes (Art. 9 StHG); Ordinance on Tax Deductions for Contributions to Recognised Forms of Pension Provision (Art. 1 BVV 3).
Insurance and Pension Consultant · Social Insurance Specialist with Federal Diploma of Higher Education
