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

Anyone who holds a pillar 3a account rarely stays for good with the provider offering the most suitable terms. Switching the product or the provider is generally possible at any time, as long as the capital remains within the restricted pension framework. What matters are the deadlines, the tax consequences and the question of whether an early withdrawal is permitted at all.

This article shows when switching or closing a pillar 3a account is worthwhile, which rules the legislator sets and how the transfer works step by step.

What does “cancelling” and “switching” pillar 3a mean?

Pillar 3a is the tax-privileged, restricted private pension in Switzerland. “Switching” means transferring the assets to another provider or into a different 3a product while the capital stays tied up. “Cancelling” or “closing”, by contrast, means withdrawing the capital, which is only possible under conditions defined by law. The two follow different rules.

The key points at a glance

• Switching provider or product is generally possible at any time, as long as the capital stays within pillar 3a.
• The ordinary withdrawal is possible at the earliest five years before the AHV reference age; if you keep working, you can defer it by up to five years beyond that.
• An early withdrawal is only permitted in narrowly defined cases, such as residential property, self-employment or a permanent departure from Switzerland.
• The payout is taxed separately from your other income and at a reduced rate.
• For life insurance policies, an early cancellation or switch is usually not worthwhile.

Why switch pillar 3a? The most common reasons

Pillar 3a products complement the state pension of pillar 1 and the occupational pension of pillar 2. For the self-employed, the restricted pension is often a sensible addition to buying into a pension fund. Over the years, however, terms change, as do your own investment strategy or your satisfaction with the provider.

The most common reasons for switching are:

• Uncompetitive terms compared with the market, such as high custody fees.
• Dissatisfaction with the provider or the conditions of the agreement.
• The wish for a different investment strategy, for example moving from an interest account to a securities solution.
• An upcoming early withdrawal, provided the conditions are met.

Further reading: learn more about the three-pillar system in Switzerland.

When does it make sense to cancel pillar 3a, and when not?

Closing a 3a account releases the pension capital. The legislator has set clear rules for this, and in individual cases a careful review is worthwhile, because an early payout often brings disadvantages. In principle, a distinction must be made between an early withdrawal and a withdrawal on reaching the age limit.

Early withdrawal: only in defined cases

The rules for early withdrawal resemble those of pillar 2. Pillar 3a assets may be withdrawn early in the following cases:

• buying or building owner-occupied residential property
• amortising a mortgage on owner-occupied residential property
• starting self-employment
• leaving Switzerland permanently (verifiably for good)
• receiving a full disability pension
• buying into a pension fund (a tax-recognised pension institution)
• in the event of death

Transferring capital from pillar 3a into pillar 2 is tax-neutral in this context, provided the capital is moved directly.

Withdrawal on reaching the age limit

The ordinary withdrawal of pillar 3a capital is possible at the earliest five years before reaching the AHV reference age. The reference age is 65; for women it is being raised in stages from 64 to 65 under the AHV 21 reform. Anyone who keeps working beyond the reference age can defer the withdrawal by up to five years.

The balance of a 3a account must always be withdrawn in full, in a single amount. A partial withdrawal of individual amounts is not possible. It therefore makes sense to spread contributions across several 3a accounts from the start and to stagger the later withdrawals across different tax years. The payout is taxed separately from your other income and at a reduced rate (capital withdrawal tax).

Special case: life insurance

Cancelling a life insurance policy before the end of the contract term usually involves costs. In the first few years, the surrender value is often close to zero, because the acquisition costs are charged first. Even later, an early cancellation is generally a disadvantage, because an alternative investment would have to earn a correspondingly higher return, at higher risk, to make up for the loss.

Anyone who applies for new insurance cover later also pays a higher premium, because the entry age on the day of the new contract counts. With health issues, new cover may be refused altogether.

How do you switch pillar 3a? Process and specifics

You can switch the provider of your pillar 3a account at any time, and you can convert the product as well. What matters is that the capital stays within the 3a system. Whether the balance moves to another bank or between the pension solutions (interest account, life insurance or securities custody account) makes no difference.

You can move from a 3a interest account into a 3a securities custody account or vice versa, either with your current bank or with a new provider. Bear in mind the notice periods, which each provider sets itself.

Specifics of the securities custody account

When switching provider, your current bank sells the securities at the current market price. The new provider receives the proceeds and buys new securities at the price then applicable. A direct transfer of the securities is currently not possible at any bank. This means your pension capital is not invested for a few days. Choose the timing deliberately.

When a switch is worthwhile

The differences in terms can be considerable between providers. It is worth comparing them regularly, because the balance can be transferred without loss of capital. With an investment horizon of more than ten years, a 3a securities solution is worth considering: it carries higher risk, but over long periods it offers the chance of higher growth than a pure interest account.

Past performance, however, is not a reliable indicator of future results. Which solution suits you depends on your investment horizon, your risk capacity and your personal goals.

Which information is needed to cancel or switch?

To cancel or switch a 3a account, most providers supply their own forms. It is important to state the reason, since this is required by law for an early withdrawal.

In addition, note the following:

• The cancellation is usually made in writing (providers mostly supply forms for this).
• State your 3a account number.
• When switching a securities custody account, point out that the securities must first be sold.
• When switching provider, state the name, address and the new account number.
• Ask in good time about the notice periods of your current provider.

How does switching provider work step by step?

When switching, you can only ever transfer the entire balance of a 3a account. This too is an argument for spreading contributions across several accounts from the start. The switch happens in these steps:

1. Open a new 3a account with the new provider.
2. Wait for confirmation that the account has been opened.
3. Cancel the 3a account with your current provider and instruct the transfer of the balance to the new account.
4. The current provider confirms the cancellation.
5. For a securities custody account, the units are sold at the market price.
6. The pension assets are transferred to the new 3a account.

Frequently asked questions about cancelling and switching pillar 3a

Can I switch my pillar 3a account to another provider at any time?

Yes. Switching provider is generally possible at any time, as is switching the product, for example from an interest account to a securities solution. The only requirement is that the capital stays within the restricted pension framework and is transferred directly. Note the notice periods and any transfer fees of your current provider.

Are there costs when switching pillar 3a provider?

For the ordinary withdrawal at retirement, there are usually no fees. Some providers, however, charge a fee for an early transfer to another institution. Ask about the specific terms before switching. Some providers cover the transfer costs when you move to them.

When may I withdraw my pillar 3a assets early?

An early withdrawal is only possible in cases defined by law: buying or building owner-occupied residential property, amortising a mortgage, starting self-employment, leaving Switzerland permanently, receiving a full disability pension or buying into a pension fund. Without one of these grounds, the capital stays tied up until five years before the reference age at the earliest.

How is a pillar 3a payout taxed?

On payout, the assets are taxed separately from your other income and at a reduced rate (capital withdrawal tax). Holding several 3a accounts and staggering the withdrawals across different years can break the tax progression. The actual charge depends on your canton of residence and the amount of capital.