How Big Are the Actual Tax Savings in Your Region Thanks to Pillar 3a?

Use private pension provision to save on taxes 

The amount of tax you can save with Pillar 3a varies from region to region.

Pillar 3a is an interesting option, not least because of the tax benefit it offers. Contributions can be deducted from your taxable income (up to the statutory maximum amount). No wealth or income tax are applied for the entire term of the investment. When the capital is paid out, it is taxed separately from other income at a reduced rate.

The tax-saving effect depends primarily on the individual marginal tax rate. This expresses how the tax burden changes when the taxable income increases or decreases by a specific amount. Due to tax progression, the marginal tax rate usually increases in step with taxable income, with the scope of tax progression – and thus the tax savings achieved through Pillar 3a – varying greatly depending on where you live.

The cantonal differences when looking at selected example households are clear: A single person without children who has a taxable income of CHF 100,000 can save CHF 2,539 in income taxes in Sion (VS) with a deduction of CHF 7,056 (the Pillar 3a maximum amount for gainfully employed persons affiliated with a pension fund in 2023); in Schwyz (SZ), that figure would be CHF 1,368 due to the lower marginal tax rate. For taxable incomes of CHF 150,000, a tax bill in Sion would be reduced by CHF 2,985, and in Schwyz by CHF 1,681. Paying in to Pillar 3a is therefore particularly beneficial in cantons and municipalities with a higher tax burden. High incomes benefit the most in Swiss francs. On a percentage basis, however, lower incomes can reduce their tax burden more significantly – provided they are able to afford the contributions.

Taxation on payout of capital: Spreading payments is key

Retirement capital from the second or third pillar is taxed at a reduced rate

When retirement capital is paid out from the second or third pillar, it is taxed separately from other income at a reduced rate. Any lump-sum payouts from your pension provision (Pillar 3a, pension fund, vested benefits account) in the same calendar year are added together. Withdrawals by spouses or registered partners are also added together. As is the case at federal level, taxes on lump-sum payments are subject to progression in many cantons: The tax rate on large lump-sum payments is proportionately higher.

Here, too, there are regional differences, which can be several thousand Swiss francs from one municipality to another. In tax-friendly Schwyz (SZ), for example, a married couple without children can expect to pay taxes of CHF 1,505 on retirement capital of CHF 100,000 (1.50%). In Herisau (AR), the amount owed in taxes would be approximately CHF 5,933, or 5.93% of the capital saved. In the case of lump-sum withdrawals of CHF 1 million (e.g. from the second pillar), the cantons of Appenzell Innerrhoden and Nidwalden offer the most attractive tax rates.

Tax progression: Staggering the withdrawal of capital often brings tax benefits

Due to tax progression, staggering the withdrawal of capital over several years brings considerable tax benefits in many cantons. However, individuals must plan staggered withdrawals at an early stage – not least because tax practices vary greatly from canton to canton, and different pension funds have different solutions. As it is only possible to have the balance of an individual Pillar 3a savings account paid out in full, it's worth opening multiple pension accounts.

The tax benefits obtained by staggering the withdrawal of retirement capital can be substantial depending on where you live. In the example below of a married couple, staggering the withdrawal of a total of CHF 1 million from the pension fund and Pillar 3a over four years in the cantonal capitals of Basel-Land and Schwyz results in a saving of approx. CHF 40,000. The cantons of Glarus, Obwalden, St. Gallen, Thurgau, and Uri apply a uniform tax rate regardless of the lump-sum amount paid out. In these cantons, the benefits of staggering withdrawals are less pronounced, since the tax progression applies only to federal taxes.