Pillar 3a: 12 Common Mistakes to Avoid

The pillar 3a can offer substantial tax savings, but using it incorrectly can greatly reduce the benefits. In this guide, moneyland.ch lists common mistakes people make when using the pillar 3a, and explains how to avoid them.

1. Not understanding what the pillar 3a is

Before you can effectively use the pillar 3a, you need to understand what it is. The pillar 3a is not a specific account or other financial product. Rather, it is a component of the Swiss three-pillar pension system. Residents of Switzerland who earn an income on which they must pay social security contributions can can use the pillar 3a to save for retirement on a tax-preferred basis.

When you pay into a pillar 3a savings account or other financial service, you are entrusting your money to a retirement foundation. The foundation holds the money in trust and makes sure that you only withdraw it when you reach retirement age or qualify for an early pillar 3a withdrawal.

In exchange for locking up your money for retirement, you receive special tax benefits. The amount you pay into the pillar 3a can be deducted from your taxable income, up to an annual limit. Additionally, pillar 3a savings do not count towards your taxable wealth, and interest or dividends earned do not count towards your taxable income.

2. Not using multiple pillar 3a solutions

Many people make the mistake of using just one account for all their pillar 3 savings. But unlike regular bank accounts, pillar 3a accounts must always be cashed out in full. The money is taxed upon withdrawal. The more pillar 3a savings you cash out in one tax year, the higher the tax brackets used to calculate the taxes will be, and the more tax you will pay on the withdrawal.

Opening multiple pillar 3a accounts and dividing your pillar 3a savings between them lets you stagger withdrawals over different tax years to minimize taxes. It also allows you to keep unneeded retirement savings in the pillar 3a so that money can continue to benefit from the tax privileges in the meantime.

Because pillar 3a accounts between the ages of 60 and 65 (or 70, if you continue working past 65), it is beneficial to have five or even 10 different accounts or portfolios. That way you can cash out each one in a different tax year. As a general rule, the more pillar accounts you divide your savings between, the more flexibility you will have when making withdrawals. 

3. Not closing gaps in your pillar 3a

Every year, you have the right to pay money into the pillar 3a up to the annual limit, and to claim the tax deduction. But there may be years when you cannot afford to save the full amount, or when it does not make sense to do so.

As from 2026, you can make payments in arrears to close any gaps that occur from 2025 onwards. In years when you can afford to pay more than the annual limit, you can pay extra to make up for missed payments in previous years. Closing gaps in your pillar 3a will help you get the maximum tax benefit and ensure that you have enough money locked away for retirement.

4. Paying into the pillar 3a when there is hardly any tax benefit

Depending on your situation, there could be years in which paying into the pillar 3a will not bring a tax advantage. That could be the case, for example, in years when you earn a low income (an apprenticeship, for example), or when other tax deductions you can claim will already lower your tax bill to little or nothing.

In these years, paying into the pillar 3a does not make financial sense. Instead, you should wait until a tax year when using the pillar 3a tax deduction will radically lower your tax bill, and then pay into the pillar 3a in arrears for the years you missed.

5. Using the wrong pillar 3a solutions

Many people use pillar 3a solutions that do not match their needs, and end up losing money because of it. Which pillar 3a solutions you use for all or part of your pillar 3a savings depends on your situation.

• Short-term saving: A pillar 3a savings account is most suitable for short terms because the value does not fluctuate. That could be the case, for example, if you will soon be retiring and will withdraw the money to cover your living expenses. It could also be the case if you will make an early withdrawal. The nearer you get to retirement age or making an early withdrawal, the more sense it makes to move your assets to pillar 3a savings accounts.
• Long-term saving: If the money will remain in the pillar 3a for a long term (10 years or more), then you can potentially earn much higher returns with a pillar 3a retirement fund or a pillar 3a asset management service. That would typically be the case if you are young and retirement age is a long way away, as you can simply wait until markets recover. You can also invest your pillar 3a savings if you plan to reinvest them outside the pillar 3a after you withdraw them.

The same guidelines that apply to regular investments also apply to investing in the pillar 3a. You can find useful information in the moneyland.ch guides to investing.

6. Using pillar 3a solutions based on life insurance with cash value

Pillar 3a life insurance policies with cash value – often called mixed life insurance or savings insurance – is still widely used in Switzerland. However, there are hardly any cases in which it is an optimal pillar 3a saving or investment solution.

The reasons:

• Complicated: Pillar 3a saving solutions based on life insurance are often intransparent and difficult for non-experts to understand.
• Binding: Making early withdrawals or terminating a policy before retirement can result in a substantial loss. In some casses, terminating a policy in the first years can result in a total loss.
• Inflexible: It is difficult to move your pillar 3a assets to other offers with higher interest or lower fees. Doing so can result in a substantial loss.
• Expensive: Many pillar 3a life insurance savings solutions have very high fees and commissions that detract from the cost.

As a general rule, it is best to avoid using cash-value life insurance for your pillar 3a savings.

7. Not maximizing your returns

If you simply leave your pillar 3a savings in an account or other pillar 3a solution that pays little or no interest, you could miss out on thousands or even tens of thousands of francs.

It is also important to understand that interest and other returns that you earn on pillar 3a savings are tax-privileged. So not maximizing returns also reduces the tax benefit of using the pillar 3a.

It is beneficial to compare pillar 3a savings accounts at regular intervals (once a year, for example) and always move your pillar 3a savings to the accounts with the current highest interest rates. If you want to invest your savings, choose pillar 3a retirement funds or asset management services with low fees.

8. Not paying attention to fees

In addition to interest, it is important to look at possible fees. Avoid pillar 3a accounts that have fees for closing the account and transferring your assets to another pillar 3a solution. Many pillar 3a solutions have high fees for early withdrawals to finance a home or on account of leaving Switzerland, and you should pay attention to these if you plan to make an early withdrawal.

If you want to invest your retirement savings, you should also pay attention to the ongoing fees. In the case of retirement funds, there is the fund’s annual fee (the TER), as well as possible custody fees and/or sales charges. The interactive pillar 3a retirement fund comparison accounts for all of these costs. In the case of asset management services, you should look at the annual asset management fee and the TERs of the funds used. You can find a cost comparison in the guide to pillar 3a asset management services.

9. Paying in money you cannot afford to live without

Once you put money into a pillar 3a account, it cannot be withdrawn even in financial emergencies – except in certain cases. Because of this, it does not make sense to place money in the pillar 3a if you might need it in the foreseeable future. Only put money in the pillar 3a if you can afford to live without it until you retire. Always have an emergency fund outside of the pillar 3a that you can use if the need arises.

It is important to note that you can make payments in arrears to close any gaps that occur from 2025. That means you can always make up for any payments you missed at a later point in time when you do have extra money.

10. Paying in more than the limit

If you use more than one retirement foundation, then you have to be careful not to pay in more than the annual limit. That can happen, for example, when you have pillar 3a accounts at different service providers, because your provider cannot track how much you pay into other retirement foundations.

If you do end up paying more into the pillar 3a than the limit allows for, you will receive a certificate from the tax office. You must then send this certificate to your pillar 3a service provider, and they will refund the excess portion.

11. Using pillar 3a for insurance instead of retirement savings

Insurance companies offer private term life insurance and disability insurance that are denominated by the pillar 3a so that you can include the premiums you pay in the pillar 3a tax deduction. However, if you can afford to save the maximum pillar 3a amount for retirement, then it is advisable to use the pillar 3a for retirement saving only. 

The reason: While the initial pillar 3a tax deduction is the same, the long-term tax benefits are bigger for retirement savings. That is because interest and dividends are not taxed throughout the savings term, and pillar 3a savings do not count as taxable wealth.

You can use the non-privileged pillar 3b for needed term life insurance or disability insurance.

12. Not planning ahead

Many people fail to create a concrete plan for how they will withdraw and use their pillar 3a savings when they reach retirement age. Whether you are just starting out with using the pillar 3a or already have substantial pillar 3a savings, it is worth taking a moment to plan these things:

• When will you withdraw your pillar 3a savings?

You can withdraw your pillar 3a savings between the age of 60 and 65 (or up to age 70 if you continue working). Take time to plan how you will stagger the cashing out of your pillar 3a accounts over those years.

If you plan to make a lump-sum withdrawal from your occupational pension fund or vested benefits when you retire, it is worth coordinating these with your pillar 3a withdrawals. The reason is that currently, withdrawals from the pillar 3a and pension fund benefits in the same tax year are lumped together to determine your tax bracket. Spacing out pillar 3a and pension benefit withdrawals across different tax years can reduce your tax bill.

• What will you do with your pillar 3a savings?

If you want to convert your pillar 3a savings into a steady income during retirement, you can do so by dividing up your savings across a certain period of time (20 years, for example). You can then place the withdrawn money in a savings account and set up a standing order to transfer the relevant amount to your private account every year (or 12 monthly payments).

If you are relatively risk-tolerant, you could consider investing any withdrawn pillar 3a savings that you will not need to use for at least 10 years.

There are also specialized withdrawal plans and private pensions from banks and insurance companies. You can find helpful information in the guide to withdrawal plans and private pensions.

More on this topic:
Compare pillar 3a savings accounts now
Compare pillar 3a retirement funds now
Pillar 3a asset management services compared
When can I withdraw pillar 3a savings?
Pillar 3a: Possible fees and charges explained
Common investment mistakes to avoid