The following change will be introduced in the Pillar 3a as of 1 January 2025: contribution gaps in the Pillar 3a can be closed retroactively with a buy-in for up to ten years by additional payments, and these payments are tax-deductible.
Individuals with an income subject to Swiss social contributions can make payments into pillar 3a, within the applicable thresholds. For 2025, the maximum tax deduction for individuals subject to pension fund contributions (‘small deduction’) is CHF 7,258. Taxpayers without contributions to the 2nd pillar (‘large deduction’) can make a tax-deductible payment of up to CHF 36,288 or a maximum of 20% of net annual income to the Pillar 3a. .
Until now, it was not possible to make retrospective payments into Pillar 3a. This will change as from 2025: taxpayers can now compensate for contribution gaps in the Pillar 3a from the last ten years.
Requirements for retrospective payments
Retrospective purchases are subject to the following conditions:
- Retrospective payments are only permitted for contribution years in which an income subject to Swiss social contributions was earned.
- Retrospective purchases are limited to the last ten years.
- A purchase requires that the ordinary annual contribution to the Pillar 3a was paid in full in the year in question.
- The amount of the retrospective payment is limited to the ‘small deduction’.
- Once retirement benefits have been drawn from Pillar 3a, purchases are no longer permitted.
Transitional provisions
Contribution gaps that occurred before the new regulation came into force cannot be compensated. This means that a retroactive payment for the year 2025 can be made for the first time in 2026.
Practical implementation
To make a purchase, a formal application must be submitted to the respective compensation fund. If the conditions are met, the compensation fund will approve the purchase and issue a certificate as a proof for the tax deductibility.
Planning options
The new regulation can be used not only for missed payments but also for tax planning. Depending on the income situation, the additional Pillar 3a ‘small deduction’ can be used to mitigate tax progression. Instead of contributing the full amount to the Pillar 3a each year, it may be more advantageous to contribute in years when the income is higher.
In addition, new planning options are available for people with domestic and foreign sources of employment income. Contributions to Pillar 3a are generally allocated pro rata to Swiss and foreign income. Until now, tax payments into Pillar 3a were less attractive for income allocated primarily abroad. With the new option, taxpayers could time their payments in such a way that they occur in years with mainly taxable income in Switzerland in order to achieve the maximum tax advantage. It remains to be seen whether and how the tax authorities will respond to this new structuring option.
Outlook
It remains to be seen how the taxation of lump-sum withdrawals from pensions, which also includes Pillar 3a, will develop. The Federal Council’s proposal for a federal budget relief package on 20 September 2024 envisages that future lump-sum withdrawals will no longer be taxed separately, but will be subject to the ordinary income tax at the pension rate. It remains to be seen whether the new flexibility in making payments into pillar 3a will be accompanied by further restrictions on taxation at pay-out. Nevertheless, the option of making additional payments into Pillar 3a is a positive change that offers both tax and pension policy advantages.