Cancel & switch pillar 3a: This is what you should consider

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If you have a Pillar 3a account, it’s unlikely that you’ll be with exactly the provider that offers you the best terms. By switching to a different provider, you could save several hundred francs each year – depending on the size of your retirement savings and the difference in interest rates.

In this article, you will learn when it may make sense to cancel your pillar 3a. You will also learn how a change is possible and what you should bear in mind.

The most important facts in brief

• Ordinary withdrawal of Pillar 3a retirement capital is possible from five years before the AHV retirement age.
• Early withdrawal is only possible under the conditions strictly regulated by law.
• A change of product is possible at any time, as is a change of provider.
• There are sometimes considerable differences in conditions among providers.
• In the case of life insurance policies, early termination or switching is usually not worthwhile.

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Switching to pillar 3a: the main reasons at a glance

Pillar 3a products are ideal supplements to the state pension plan of Pillar 1 as well as the occupational pension plan of Pillar 2. Often, the tax-advantaged tied pension plan is also more lucrative for the self-employed than the option of buying into a pension fund. But what if you want to access the capital early?

There are various reasons for a pillar 3a switch or a pillar 3a dissolution.

The most important are:

• The conditions are unfavorable compared to competitors.
• Dissatisfaction with the general conditions of the agreement or with the provider.
• Pillar 3a dissolution due to reaching the age limit.
• Early withdrawal, provided the requirements are met (note the tax implications).

Reading tip: Find out everything about Switzerland’s 3-pillar principle here.

Cancel pillar 3a: When does it make sense and when not?

When the pension assets from pillar 3a are terminated, the pension capital is available. However, the legislator has provided clear regulations for this case. In addition, the termination should be carefully examined in each individual case, as disadvantages often arise in the event of premature termination. Basically, a distinction must be made between early withdrawal and reaching the age limit.

Early withdrawal

The rules for early withdrawal are similar to those for Pillar 2. According to the law, Pillar 3a assets may be paid out early in the following cases:

• Establishment of self-employment
• Repayment of mortgages
• New construction and purchase of owner-occupied residential property
• Moving out of Switzerland (important: demonstrably permanent)
• In the event of death
• In the event of drawing a full disability pension
• Purchase into a pension fund (if there is a pension gap as an employee, for example due to non-contributory phases)

In this context, a transfer of capital from pillar 3a to pillar 2 is tax-neutral. If the capital is transferred directly, no taxes are levied.

Reaching the age limit

The so-called ordinary withdrawal of the capital from pillar 3a is possible at the earliest five years before reaching the AHV retirement age. This is currently 64 years for women and 65 years for men. In principle, the retirement capital from a 3a account must be withdrawn in full in one sum. However, up to five 3a accounts are possible. The payout is subject to a reduced capital gains tax.

Special case of life insurance

The termination of a life insurance policy before the regular end of the policy term is always associated with costs, about which you should make specific inquiries.

In the first few years, the surrender value that is paid out is close to zero, and as the insured, it is not uncommon for you not to receive a single franc. This is due to the fact that in the first few years, the acquisition costs, including the acquisition commission, are initially charged. But even in the further course, an early termination of life insurance is usually associated with disadvantages. After all, an alternative investment would have to yield a substantial return, but this can only be achieved with a significantly increased risk.

Anyone who applies for new insurance coverage at a later date will basically have to buy it at a high premium. The higher entry age on the day of the new policy is then applied, and people in poor health may no longer receive insurance.

Switch to pillar 3a: How is it possible and when does it make sense?

You can change the provider of your pillar 3a account at any time. Many providers will even support you in doing so. It is also possible to convert the pillar 3a product. However, the money must remain in the 3a system.

It is therefore irrelevant whether the current balance is transferred to another bank or within the various pension solutions (interest account, life insurance or securities account).

For example, you can switch from a 3a interest account to a 3a securities account or vice versa. Both with your current bank and by transferring the capital to another provider. The notice periods applicable at the respective providers must be taken into account.

Special features for life insurance policies

Switching from one insurance policy to another pillar 3a product is possible in principle, but normally involves very significant disadvantages. The reasons for this are the same as those already described in the section on termination.

Special features of the securities custody account

When changing the provider, the previous bank sells the securities at the current daily rate. The new provider receives the capital resulting from the sale of the securities and in turn buys new securities at the then current daily rate. A direct transfer of the securities is not yet possible with any bank. This means that your pension capital is not invested for a few days.

Pillar 3a change: often sensible

The differences in conditions between banks can be enormous. It is therefore advisable to compare them regularly. Finally, the 3a assets can be transferred from one provider to another.

As of October 2022, the interest rates for 3a interest accounts range between 0.05 and 0.25 percent. Although still at a low level, there are clear differences in the interest rates. In absolute terms, these are also likely to increase with the current rising interest rate level.

If you have an investment horizon of more than ten years, you should also consider a 3a securities solution when making a switch. Although this means accepting a higher risk in the short term, experience has shown that you will usually achieve a higher return in the long term.

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Cancel or change your Pillar 3a account: These details are required

In order to terminate one’s pillar 3a account, the providers often provide their own forms, which facilitate the termination. It is particularly important to state the reason for termination, as this is required by law.

In addition, the following should be noted:

• As a rule, the termination must be in writing (providers usually provide information on their website and provide forms).
• Indicate your 3a account number.
• When switching securities, it is useful to indicate that the existing securities still have to be sold.
• When changing providers, name, address as well as the new account number should be provided.
• Find out in good time about your provider’s notice periods, as these can be set by the providers themselves.

Change provider Pillar 3a account: Expiration

When switching, keep in mind that you can only ever cancel or switch the entire account balance of a 3a account. For this reason, it always makes sense to distribute the deposits over several 3a accounts.

The switch is carried out in the following steps:

1. Opening of the new 3a account with the new provider.
2. Wait for confirmation of the opening of the new account from the new provider.
3. Cancel the 3a account with the current provider and order the transfer of the retirement assets to the new account.
4. Previous provider sends confirmation of termination.
5. In the case of a securities account, the units are sold at the current daily price.
6. Pension assets are transferred to the new 3a account.

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Frequently asked questions (FAQ)

What explains the differences in conditions among providers of pillar 3a accounts?

Most banks offer a fee-free 3a account. However, fees of between 0.4 and 1.2 percent must be expected for 3a securities accounts.

The differences in the conditions are due to the different business models of the banks. The individual banks calculate themselves what conditions they can offer for their 3a accounts. New low-cost offers have emerged in particular as a result of advancing digitization.

Are there any costs when switching 3a account providers?

There are usually no costs for regular retirement withdrawals. However, since providers want to keep their customers for as long as possible, many providers now charge fees for early withdrawals or when switching providers. According to current experience, these can amount to up to 120 francs.

Are there any special offers with new providers?

Some providers now entice customers who switch a securities account to them by assuming all transfer costs.