Voluntary pension provision buy into pension fund or pillar 3a

Voluntary pension contributions: Should you pay into the second pillar or Pillar 3a? 

Those who want to ensure financial security in retirement can take advantage of two voluntary provision options with tax benefits: buying into a pension fund or paying into Pillar 3a. The pros and cons of each option to enable you to make the right decision in your own situation. 

Voluntary provision is popular in Switzerland

Switzerland has an aging population and benefits from Old Age and Survivors' Insurance (AHV), and from pension funds in particular, are coming under ever-increasing pressure. For this reason, Swiss residents pay a great deal of additional money towards voluntary pension contributions each year. They have two options for this.

  • Employee benefits insurance: They can make voluntary contributions in their second pillar. This is considered purchasing pension benefits.
  • Private pension provision: They can make voluntary payments to Pillar 3a.

Both the pension fund and Pillar 3a are referred to as "tied pension provision." Tied pension provision means that the funds are generally paid only once retirement has been reached. Early payout is permitted only under certain conditions. Although the two variants exhibit similarities, there are also certain differences that need to be borne in mind. The question of whether payments into the 2nd pillar or Pillar 3a make more sense depends on various factors and must be reviewed on a case-by-case basis.

Tax benefits thanks to voluntary provision

Paying voluntarily into the 2nd pillar or Pillar 3a helps to avoid financial shortfalls after retirement and has attractive tax benefits.  Amounts paid into the second pillar or Pillar 3a during the year are tax-deductible in full in an individual's tax return. It is therefore usually worth spreading the payments over several years. Tax is only payable when you draw down the money and moreover withdrawals are taxed at a reduced rate.

Following the introduction of the AHV 21 reform on January 1, 2024, all pension funds will have to allow persons who continue in gainful employment to purchase pension benefits for up to five years after they reach the reference age. However, if a person is already drawing or has drawn retirement benefits from another pension fund, the maximum purchase amount is reduced in proportion to the retirement benefits already drawn and must be reported via a form to the pension fund when the purchase is made.

Greater freedom to buy into pension funds

There are big differences between the amounts that can be paid into the the second and third pillars. Employees who are members of a pension fund can pay in a maximum of CHF 7056 into Pillar 3a in 2023. For those who are self-employed and are not affiliated with a pension fund, the limit  is 20% of net employment income up to a maximum of CHF 35 280. These limits are set by the Swiss Federal Council every year. However, if you have no money available for payments into the Pillar 3a in a particular year, you have lost your chance. You cannot compensate for missed payments. A motion making it possible to make up for missed payments at a later point in time was recently passed by the Federal Assembly. It is still unclear whether and when this would be possible.

This restriction does not apply to the second pillar: In accordance with the provisions set out in your pension fund's regulations, you can pay in up to your individual limit and skip a year if you want to. The maximum amount you can pay into the second pillar depends on a variety of factors such as your age, salary and your retirement savings in the pension fund. The individual buy-in limit is normally stated on your pension fund statement. Most employees can pay significantly more into the second pillar than Pillar 3a.

When purchasing pension benefits is worthwhile

A voluntary purchase of pension benefits is financially very attractive. Anyone investing elsewhere would have to earn a return of around 10% to generate the same capital after 10 years.

However, a voluntary payment is only possible and worthwhile if three conditions are met:

  • Only those who have a pension gap or a coverage shortfall, for example due to changing jobs or a spell abroad, are permitted to pay in.
  • Those who have withdrawn part of their retirement capital to buy a residential property first have to repay this advance withdrawal before they are allowed to make voluntary purchases again.
  • It only makes sense to purchase additional pension benefits if you belong to a pension fund that is on a healthy footing (funding ratio of 100% or more).

In terms of taxes, additional payments are worthwhile in the years you earn the most. This is often the case in the last ten years of work before retirement. You should also note that any tax deductions made will be reversed retroactively if you make a lump-sum withdrawal in the three-year period following the purchase of benefits. If are not planning on making a lump-sum withdrawal, you can purchase benefits until you retire.

Purchasing pension benefits and investing in securities: a comparison

A Protestant married Swiss couple in their 50s residing in Thalwil wants to retire at the age of 62. The couple has CHF 350,000 in taxable income. Their savings rate is CHF 50,000. They have a CHF 1,000,000 securities portfolio (balanced investment strategy). The retirement assets in their pension fund total CHF 800,000, with a purchasing gap of CHF 450,000.

The couple is now considering whether to actually purchase this amount in pension benefits or invest the CHF 450,000 in securities. In the case of the purchase of pension benefits, it is assumed that only the purchased amount will be withdrawn as a lump sum upon retirement and that the remaining retirement capital will be drawn from the pension fund in the form of a pension. A comparison of both options reveals how attractive purchasing pension benefits can be as opposed to conventional investments.

Purchase of pension benefits:

   CHF 450,000

Cumulative interest income on purchases at retirement (assumption 1.0%)

+ CHF 37,446

Tax savings on purchased pension benefits

+ CHF 163,242

Tax savings invested in securities, assuming a return of 2.80% p.a.

+ CHF 36,090

Tax burden for lump-sum withdrawal from pension fund assets

– CHF 28,897

Value of purchased amounts at retirement

   CHF 657,881


Investments in securities

   CHF 400,000

Assumed return on securities of 2.80% p.a.

+ CHF 99,167

Value of securities at retirement

   CHF 549,167


Final balance of pension benefits purchased

   CHF 657,881

Final balance of securities investments

– CHF 549,197

Extra amount from purchasing pension benefits

   CHF 108,715

Equivalent to an extra return of


Purchasing pension benefits is attractive

Purchasing pension benefits can offer attractive opportunities 

Source: Credit Suisse

Pillar 3a offers more flexible investment opportunities than the second pillar

There is usually no freedom to choose the type of investment oneself in the second pillar – the investment strategy is determined by the Board of Trustees of the pension fund. An exception to this is 1e plans, which some pension funds offer to members with an annual income of over CHF 132,300. Pension funds do offer another advantage, however. They are legally required to guarantee a minimum interest rate, which is set each year by the Swiss Federal Council. The rate for 2024 is 1.25%, which is more than most banks offer on their Pillar 3a accounts. It only applies to the mandatory portion of the pension fund assets, however, and pension funds can set their own interest rates on the extra-mandatory portion.

With a Pillar 3a account, the money you pay in sits in a pension account. This pays a preferential interest rate compared to a regular savings account. You also have the option of using a Pillar 3a securities account to invest your money in one or more securities-linked solutions. These offerings provide better return opportunities over the long term. This allows you to participate in any rise in financial markets and gives you the chance of higher returns.

Purchase of pension benefits and contributions to Pillar 3a compared


Pillar 3a

Pillar 2

Save tax-efficiently



Maximum amount in 2023

CHF 7,056 with pension fund

CHF 35,280 without pension fund

Individual purchase limit in pension fund statement, usually much higher than for Pillar 3a.

Form of investment

Pension account or securities portfolio

Retirement capital; securities portfolio in 1e plans

Interest rate

Preferential interest rate on 3a account

Guaranteed minimum interest rate on mandatory portion (as of 2024: 1.25%)


Possible, depending on provider

Possible, depending on pension fund


Withdrawal as a lump sum or as a pension
in life annuity insurance

As a lump sum or pension; N.B. pension fund regulations sometimes restrict lump-sum withdrawals

Withdrawal before reference age

Five years before reaching AHV reference age

At age 58 at earliest depending on pension fund regulations

Staggered withdrawal

Yes, if the policyholder has several accounts

Yes, in relation to partial retirement

Withdrawal after the reference age

Yes, if still working. Up to five years after reaching the AHV reference age.
You can continue to make tax-privileged payments in the third pillar until this date.

Yes, up to five years after reaching the AHV reference age if still in gainful employment


Paid out in accordance with the order of beneficiaries

Paid out in accordance with the order of beneficiaries, if provided for in the pension fund regulations

Pillar 3a allows staggered lump-sum withdrawal

There are also differences when it comes to paying out retirement assets. Pension funds must pay out at least 25% of the mandatory retirement assets as a lump sum at retirement on request. Most pension funds will now even pay out up to 100% of the retirement assets as a lump sum. The second pillar therefore offers the opportunity to draw down the retirement savings as a one-off payment or a monthly pension – or to choose a mixture of the two.

In Pillar 3a, the money can only be drawn down as a pension in the case of life annuity insurance policies. By contrast, the retirement savings in Pillar 3a can already be drawn five years before reaching the reference age. And those who continue working beyond normal retirement age can delay drawdown for up to 5 years. Moreover, if one holds several 3a accounts, the withdrawals can be spread over several years.