How Does the Swiss Third Pillar Work? A Guide for Hungarians

What is the third pillar, and why does it matter?

The Swiss pension system rests on three pillars. The first two are mandatory — the third is not, yet many people use it.

The first pillar is the state old-age and disability insurance (Alters- und Hinterlassenenversicherung / AHV, or Assurance vieillesse et survivants / AVS). It is mandatory for all employees and self-employed persons; the pension is based on contributions paid. In 2025, the AHV pension ranges from CHF 1,260 to CHF 2,520 per month (minimum to maximum), and by itself is usually not enough for most people to maintain their accustomed standard of living.

The second pillar is the occupational pension fund (berufliche Vorsorge / BVG, or prévoyance professionnelle / LPP). It is mandatory for employees whose annual salary exceeds the entry threshold of CHF 22,680 (2025 figure). It is financed jointly by employer and employee.

The third pillar builds on these two mandatory elements — on a voluntary basis. Its purpose is to reduce the expected pension gap (Vorsorgelücke) through the individual's own savings. It is particularly important for those who:

• work in Switzerland for a shorter period (and thus accumulate less AHV entitlement),

• work part-time (where the second pillar may be lower),

• are self-employed (who have no mandatory BVG membership),

• or simply wish to reduce their tax burden.

From a Hungarian perspective, this last point is particularly relevant: the third pillar is one of the most straightforward ways to legally reduce your tax base in Switzerland.

Third pillar 3A: what is the essence of bound savings?

The 3A pillar (gebundene Vorsorge / Säule 3a) is the bound, tax-advantaged form. "Bound" means that the amount paid in cannot be freely withdrawn — only in defined life circumstances, and only under conditions set by law.

Who can open a 3A account?

A 3A account can be opened by anyone who:

• has a place of residence in Switzerland and

• has taxable income in Switzerland (from employment or self-employment).

As a Hungarian citizen, if you hold a valid residence permit (Ausländerausweis) and work in Switzerland, you are eligible. There is no citizenship requirement.

Important: a 3A account can be opened at a bank (Bankstiftung) or with an insurance company (Versicherungsgesellschaft). There is a significant difference between the two forms: the bank 3A account is more flexible (you can invest in investment funds), while the insurance 3A product is typically combined with life insurance and involves longer-term commitment.

Tax deductibility: how does it work in practice?

The main appeal of the 3A pillar is tax deductibility. Annual contributions are deductible from your tax base — for both federal and cantonal tax purposes.

The deduction amount depends on whether you have BVG membership (second pillar):

Tax savings vary by canton, since cantonal tax rates differ. In Zurich, for example, a middle-income employee's maximum Pillar 3a contribution might generate roughly 1,500–2,200 CHF in annual tax savings — but this depends on actual income and your home canton.

Pillar 3b: what is free savings all about?

Pillar 3b (freie Vorsorge / Säule 3b) is the flexible, unrestricted form. It covers almost any other savings and investment vehicle you set up outside Pillar 3a: life insurance, securities accounts, real estate, bank deposits.

How does it differ from Pillar 3a?

With Pillar 3b, the tax benefit is significantly smaller. In some cantons, 3b insurance premiums are partly deductible from the general insurance premium framework (Versicherungsprämienabzug), but that allowance is low — typically a few hundred CHF per year, and it's shared with other insurance premiums (health insurance, etc.).

The advantage of Pillar 3b is flexibility: no contribution obligation, no lock-in period, and capital is accessible anytime. This is especially important for those unsure how long they'll stay in Switzerland.

Contribution limits and tax benefits for 2025–2026

The annual maximum Pillar 3a contribution is regularly reviewed by the Federal Social Insurance Office (Bundesamt für Sozialversicherungen / BSV). The amount is tied to the AHV/AVS maximum.

• In 2025, the employee maximum is: 7,258 CHF/year.

• For 2026: the BSV typically publishes the following year's figure at the end of the previous year. Editors should verify the 2026 amount before publication.

Contributions are not mandatory every year. If you don't contribute in a given year, there's no penalty — but you also cannot claim the tax deduction retroactively. Making up missed years (Einkauf) is possible with Pillar 3a not possible — this differs from the second pillar, where buyback is possible under certain conditions.

When should you contribute?

Contributions made by the end of the tax year (December 31) can be deducted from that year's taxable income. Many financial institutions operate with longer processing times in the final days of the year — it's advisable to make contributions by the end of November to ensure they appear in the correct tax year.

Usage rules: when and how can you access the funds?

Due to the restricted nature of the 3A pillar, capital can only be withdrawn in specific circumstances. The following situations entitle you to a payout:

1. Reaching retirement age: up to 5 years before the statutory retirement age, or at the time of actual retirement. In 2025, the Swiss retirement age is 64 for women (this will increase to 65 as part of the ongoing AHV reform) and 65 for men.

2. Permanent departure from Switzerland: if you move from Switzerland to a country outside the EU/EFTA, the full amount can be withdrawn. If you move back to an EU/EFTA member state (such as Hungary), the situation is more complex — the amount corresponding to the mandatory insurance portion remains blocked, while the excess can be withdrawn. (See below, under Hungarian considerations.)

3. Starting self-employment: if someone transitions from employment to self-employment and exits the BVG.

4. Purchasing your own home: 3A capital can be used to purchase or build your own home, or to pay down a mortgage on an existing residential property (Wohneigentumsförderung / WEF). This is not a payout but a targeted use — the amount will be taxable, but at a preferential rate.

5. Disability or death: when a disability pension is awarded, or in the case of death, to the beneficiaries.

Important: when withdrawing 3A capital, a one-time capital gains tax at a preferential rate must be paid on the amount withdrawn (Kapitalauszahlungssteuer). This is lower than ordinary income tax, but not zero.

Third pillar from Hungarian and Swiss perspectives — the most important differences

What might be unfamiliar to a Hungarian reader?

1. There is no direct Hungarian equivalent. In Hungary, the pension savings account (NYESZ) and voluntary pension funds follow partly similar logic, but the Swiss 3A system's tax deductibility and the amount that can be deducted are substantially more favorable.

2. The deduction is from the tax base, not from the tax itself. This is an important distinction. If you have a taxable income of 100,000 CHF and contribute 7,258 CHF to the 3A, your tax base is reduced to 92,742 CHF. The amount of tax savings depends on your marginal tax rate — at higher income levels, you save proportionally more tax.

3. When returning home, 3A capital cannot be automatically brought back. If you return to Hungary, as an EU/EFTA member state, the amount corresponding to the mandatory insurance portion (obligatorischer Teil) cannot be freely withdrawn — you can only receive it when you reach Swiss retirement age. The portion above the mandatory part, the so-called überobligatorischer part, can be withdrawn. This is a complex calculation that must be coordinated with the institution managing your 3A.

4. Multiple 3A accounts can be opened — and this can be advantageous from a tax perspective. Under Swiss law, a person can have a maximum of 5 active 3A accounts at the same time. Before retirement, accounts can be closed in different years, which can be advantageous from the perspective of the preferential capital payout tax (the tax base is spread over multiple years). This is a deliberate planning tool that many people use.

5. The 3A is not coordinated with the Hungarian pension system. The Hungarian-Swiss social security agreement (Agreement between the Hungarian Republic and the Swiss Confederation on social security) applies to the AHV and mandatory systems — the 3A pillar is private savings and is not part of this coordination.

6. You must actively claim it in your tax return. The 3A contribution does not automatically appear in your tax return. The institution issues a certificate (Bescheinigung) annually, which must be attached to your tax return. If you fail to do this, you lose the tax benefit for that year.

Frequently asked questions: who is required to contribute, who is it optional for?

Is the third pillar mandatory? No. The third pillar is entirely voluntary. Neither the 3A nor the 3B is mandatory for any employee or self-employed person. The mandatory elements are the first pillar (AHV) and the second pillar (BVG, above the income threshold).

Can I open a 3A account as a self-employed person? Yes, and it's particularly advantageous for the self-employed since they don't have mandatory BVG membership. Accordingly, the maximum deductible amount is also higher: 20% of income, but no more than 36,288 CHF (2025). This is one of the most significant tax optimization opportunities for self-employed individuals in Switzerland.

I work part-time — am I eligible for a 3A account? Yes, if you have taxable Swiss income, you're eligible. The contribution maximum is the same, but if you don't have BVG membership (because your income doesn't reach the entry threshold), the higher limit applicable to the self-employed may apply.

What happens to my 3A account if I move back to Hungary? In the case of relocation to an EU/EFTA member state, you cannot withdraw the mandatory insurance portion (obligatorischer Anteil) — it remains locked until Swiss retirement age, when it will be paid out. You can withdraw the amount above the mandatory portion (überobligatorischer Anteil). The exact proportion depends on your account balance and the nature of contributions — you should clarify this with the institution.

When is the best time to open a 3A account? The sooner, the better — the tax deduction is available every year, and amounts invested in investment funds can earn returns over a longer period. That said, there's no minimum holding period requirement for tax deductibility — if you contribute by the end of the tax year, the tax deduction applies in that year.

Which is better: a bank-based or insurance-based 3A? This isn't strictly a tax advisory question, but the difference between the two forms can be described factually: bank-based 3A is more flexible (no mandatory monthly fees, can be suspended anytime), while insurance-based 3A is typically combined with life insurance and involves longer-term commitments. For shorter stays in Switzerland, the bank-based form generally carries less risk.

Does a 3A contribution also reduce my source tax (Quellensteuer)? Source tax (Quellensteuer) is tax withheld directly by the employer, paid by those who don't hold a Swiss residence permit (C permit / Niederlassungsbewilligung C) and are not Swiss citizens. The applicability of 3A deduction for source tax-liable persons is canton-dependent and tied to the possibility of filing a tax return. In some cantons it's possible to claim it retroactively through correction, in others it's not — you should check with your cantonal tax office (Steueramt).

Sources

• Federal Social Insurance Office (Bundesamt für Sozialversicherungen / BSV): https://www.bsv.admin.ch/

• AHV/IV general information page: https://www.ahv-iv.ch/

• ch.ch — joint information portal of Swiss federal and cantonal authorities: https://www.ch.ch/en/

• Federal legislation on the third pillar: Bundesgesetz über die berufliche Alters-, Hinterlassenen- und Invalidenvorsorge (BVG) and the related Verordnung über die steuerliche Abzugsberechtigung für Beiträge an anerkannte Vorsorgeformen (BVV 3)

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