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

A pillar 3a account can be transferred to another provider at any time up to the reference age, as long as the money stays within the restricted pension framework. It is paid out, however, only in cases defined by law. For a pillar 3a policy, there is a further point: in the first few years, the surrender value is often below the premiums paid in.

This article explains which rules apply to switching and closing an account, what is different for insurance solutions, and how the transfer works step by step.

What do “cancelling” and “switching” mean for pillar 3a?

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. For a pillar 3a policy, cancelling means surrender: if the policy has a surrender value, the insurer owes it, and that too stays tied up.

The key points at a glance

• Switching provider or product is possible at any time up to the reference age, as long as the capital stays within pillar 3a (Art. 3a BVV 3). The current provider sets the notice period. As a rule, the entire balance of an account is transferred.
• 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 the cases set out in Art. 3 BVV 3, for example for owner-occupied residential property, starting self-employment or leaving Switzerland permanently.
• The payout is taxed separately from your other income and at a reduced rate.
• For a pillar 3a policy, the surrender value is often below the premiums paid in the first few years. Instead of cancelling, a policy with a conversion value can be converted into a paid-up policy.

Why switch pillar 3a? Typical reasons

Pillar 3a complements the state pension of pillar 1 and the occupational pension of pillar 2. A pillar 3a account often runs for twenty or thirty years. Over that time, interest rates, products and fees change, and usually so does your own situation.

Typical reasons for switching are:

• Cost: high custody, administration or product fees compared with other providers.
• Investment form: switching from an interest account to a securities solution or vice versa, for example when the investment horizon becomes shorter.
• Dissatisfaction with the provider, for example with the service or the range of products.

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 pillar 3a account releases the pension capital. The law provides two routes for this: an early withdrawal, permitted only for specific reasons, and the ordinary withdrawal from five years before the reference age. Whether closing the account makes sense therefore often comes down to the question of whether it is permitted at all.

Early withdrawal: only in defined cases

An early withdrawal is only possible in the cases set out in Art. 3 BVV 3. The grounds fall into two groups:

• Dissolving the pension arrangement: on permanent emigration and on a full invalidity pension where the invalidity risk is not insured. Also on taking up self-employment outside mandatory occupational provision and on moving to a different kind of self-employed activity. In the last two cases, the withdrawal must be claimed within one year of starting the activity.
• Owner-occupied residential property: for purchase and construction, for participations and for the repayment of mortgage loans. Such a withdrawal can be claimed every five years.

Buying into a pension fund is not strictly an early withdrawal. Art. 3a BVV 3 allows the pillar 3a capital to be used for this purpose; the money goes directly to the pension institution and stays tied up. Because nothing is paid out to the account holder, the transfer does not trigger tax. In return, such a buy-in is not tax-deductible. On death, the balance goes to the beneficiaries, which is likewise not an early withdrawal.

Withdrawal on reaching the reference age

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.

With the ordinary withdrawal, a pillar 3a account is closed in full. Even if a provider pays out in instalments, the entire balance counts as withdrawn for tax purposes with the first payment. Anyone who spreads their contributions across several pillar 3a accounts from the start can therefore stagger the withdrawals across different tax years. The payout is taxed separately from your other income and at a reduced rate (capital withdrawal tax).

A special case: the pillar 3a policy

For a pillar 3a life insurance policy with a savings component, cancelling means surrender. The insurer owes the surrender value, and that stays tied up too: it goes into a pillar 3a account, into another 3a solution or towards a buy-in to a pension fund, and it is paid out only in the cases set out in Art. 3 BVV 3. In the first few years, the surrender value is often well below the premiums paid in, because the acquisition costs are charged first. A pure risk policy usually has no surrender value (Art. 90 para. 3 VVG); cancelling it then simply ends the cover.

The Insurance Contract Act (VVG) sets out fixed rules for this:

• Notification within four weeks: on request, the insurer must calculate and notify the conversion value or the surrender value within four weeks (Art. 92 para. 1 VVG).
• Free review: on request, FINMA checks the calculated values for accuracy, free of charge (Art. 92 para. 2 VVG).
• Due three months later: the surrender claim falls due three months after the surrender request is received (Art. 92 para. 3 VVG).
• Paid-up instead of cancelled: if the policy has a conversion value, it can be converted wholly or partly into a paid-up policy. The contract then continues without further premiums, at a lower benefit. If the conversion value falls short of the contractual minimum value, the surrender value applies instead (Art. 90 VVG).

If premiums stop after the policy has run for at least three years, the insurer owes the conversion value. If the policy can be surrendered, the surrender value can instead be requested within six weeks of the notification (Art. 93 VVG).

Anyone who cancels a policy and later looks for insurance cover again usually 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. Before cancelling, it is therefore worth comparing three figures: the surrender value, the conversion value and the price of comparable risk cover today.

How do you switch pillar 3a? Process and specifics

The basis is Art. 3a BVV 3: the pension capital may be transferred into another recognised form of pension provision. That applies to switching to another foundation just as it does to switching from an interest account into a securities custody account or vice versa. What matters is that the capital stays within the pillar 3a system and moves directly from the current to the new provider.

As a rule, the entire balance of an account is transferred. Art. 3a para. 2 BVV 3 permits a partial transfer only if the money is used for a full buy-in to a pension fund. Each provider sets its own notice periods. A transfer is possible up to the reference age, or up to five years beyond it for anyone still working (Art. 3a para. 3 BVV 3). If a pillar 3a policy falls due within the last five years before the reference age, or after it, its capital can no longer be transferred or used for a buy-in from that point on (Art. 3a para. 4 BVV 3).

Specifics of the securities custody account

Whether securities can be transferred in kind is set by the two foundations. If the transfer is made in cash, the current foundation sells the units at the price applicable at that time, and the new foundation buys new holdings with the proceeds. In between, the pension capital is not invested for a few days. Price movements during that time affect the transferred balance, both upward and downward.

When a switch is worthwhile

Terms differ between providers, for interest rates as well as for custody and product fees. It is worth comparing them regularly. An interest account can be transferred without price risk; with a custody account, the sale and the days during which the money is not invested are added to this.

A securities solution fluctuates more than an interest account. Over long periods it can achieve higher growth, but it can also produce losses. Past performance is not a reliable indicator of future results.

What information do you need to cancel or switch?

To cancel or switch a pillar 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:

• Submit your cancellation in writing.
• State your pillar 3a account number.
• If you are married or in a registered partnership, obtain the written consent of your spouse or partner for an early withdrawal for property, emigration or self-employment (Art. 3 para. 6 BVV 3).
• When switching provider, state your name, address and the new account number.
• For a securities custody account, clarify in advance whether the transfer will be made in cash or in securities.
• For a pillar 3a policy, request the surrender value and the conversion value in writing before cancelling.
• Ask in good time about the notice periods of your current provider.

How does switching provider work step by step?

When switching to another provider, you transfer the entire balance of a pillar 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 pillar 3a account with the new provider.
2. Wait for confirmation that the account has been opened.
3. Cancel the pillar 3a account with your current provider and instruct the transfer of the balance to the new account.
4. Wait for your current provider to confirm the cancellation.
5. For a securities custody account, wait for the current foundation to sell the units, unless the transfer is made in securities.
6. Check that the pension balance has arrived in the new pillar 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, up to the reference age, or up to five years beyond it if you keep working. Art. 3a BVV 3 allows the pension capital to be transferred into another recognised form of pension provision, that is, to another pension foundation, into a different 3a product or into a pillar 3a policy. The money goes directly from the current to the new provider and stays tied up. The current provider sets the notice period and any fees.

Are there costs when switching pillar 3a provider?

That is set by the current provider. Some foundations charge a fee for the transfer, others do not. For a securities custody account, the costs of selling the units are added if the transfer is made in cash. For a pillar 3a policy, the bigger cost usually lies elsewhere: the surrender value can be well below the premiums paid in during the first few years.

When may I withdraw my pillar 3a assets early?

Only in the cases set out in Art. 3 BVV 3. The pension arrangement can be dissolved on permanent emigration, on taking up self-employment outside mandatory occupational provision, on moving to a different kind of self-employed activity and on a full invalidity pension where the invalidity risk is not insured. A withdrawal is also possible for owner-occupied residential property: for purchase and construction, for participations and for the repayment of mortgage loans. Outside these cases, the capital stays tied up until five years before the reference age at the earliest.

What happens if I cancel a pillar 3a policy?

If the policy has a surrender value, the insurer buys it back and owes that value. For a pillar 3a policy, this money also stays tied up; it goes into a pillar 3a account, into another 3a solution or towards a buy-in to a pension fund. On request, the insurer must calculate the value within four weeks, and FINMA reviews it free of charge on request (Art. 92 VVG). Anyone who wants to stop paying premiums but keep the contract can have it converted into a paid-up policy, provided the policy has a conversion value (Art. 90 VVG).

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 pillar 3a accounts and staggering the withdrawals across different years can soften the effect of progressive taxation. The actual charge depends on your canton of residence and the amount of capital.