Andreas is just 55 years of age. Lately, however, he has become increasingly worried about his retirement, especially his finances. Over the past two decades, he has regularly invested the maximum possible amount into his 3a retirement savings accounts, which has allowed him to accumulate a substantial financial cushion while at the same time saving taxes each year. Now Andreas wants to find out what the best way to close these accounts is so he can ensure he is as financially comfortable as possible in retirement. He’s been told by friends that the staggered withdrawal of funds from pillar 3a accounts can help him save a lot in taxes. But what exactly is staggered withdrawal? And when is it a good idea? We answer the most important questions on the (early) withdrawal of funds from pillar 3a accounts.

When is the earliest you can withdraw money from pillar 3a?

Payments into pillar 3a can be withdrawn five years prior to normal The link will open in a new window retirement age, or in the following instances:

• You take on self-employment
• You move permanently away from Switzerland
• You purchase property you will occupy, or you repay an existing mortgage
• You take out a disability pension

You pay into the pension fund or transfer the credit to another retirement provision under pillar 3a

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The anticipated withdrawal of retirement funds from pillar 3a is only possible in very limited circumstances and in specific cases governed by law, and is incentivized by the State with tax benefits. This is because the very purpose of pillar 3a is private retirement planning, and this private provision supplements employment benefits and the state pension. This is why it’s also known as a fixed pension plan.

What is the cut-off point for withdrawing pillar 3a funds?

If you decide to carry on working when you retire and you earn income subject to OASI, you can postpone withdrawing pillar 3a funds for up to five years. However, as soon as you stop working, you do have to withdraw the capital.

Do you have to withdraw all your assets in pillar 3a in one go before retirement?

Yes and no.

Yes, if you have just one 3a retirement savings account. This is because the assets in a 3a retirement savings account can only be withdrawn in full. Partial withdrawal is not an option. If the assets are invested in retirement funds, they will be sold at their current price prior to payout.

The answer is no if you have multiple 3a solutions (either with the same financial institution or with several banks). In this case, you can close your 3a accounts early or close them on a staggered basis when you retire, although you will have to withdraw all the assets for each 3a retirement savings account. The staggered withdrawal of funds does potentially come with tax benefits, though.

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If you have an account balance of CHF 40,000 to CHF 50,000 in your current pillar 3a account, we recommend opening an additional 3a solution. The higher the amount is in each individual pillar 3a account, the higher the payout plus the tax benefit.

What is the benefit of staggered withdrawal?

If you withdraw capital from pillar2 and pillar3a, this will incur a capital withdrawal tax  Capital withdrawal tax is a levy due on withdrawals from pillars 2 and 3. This tax is due on any retirement funds withdrawn from the pension fund, on vested benefits accounts, and any pillar 3a assets paid out. Capital withdrawal tax is levied at Confederation, cantonal and municipal level. (separately to normal income and at a reduced rate). How much you are charged varies by the canton you pay taxes in and the amount of capital withdrawn. In some instances, the staggered withdrawal of capital from pillar 3a can save you taxes.

Why? Capital withdrawal tax, just like income tax, is also subject to progressive taxation in many cantons. This means the tax rate for larger withdrawals is higher as a percentage. In other words, you have to pay a disproportionately higher rate for large sums than for small sums (not just in absolute terms, but in relative terms too). If you stagger the withdrawal of your money from pillar 3a early on (in multiple tranches) rather than withdraw the whole amount in one go, you will cumulatively pay less in tax in some circumstances.

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We also recommend staggering your withdrawal of funds if you are retiring at the normal reference age.

The following example illustrates the principle of staggered withdrawal (assuming progressive taxation). Let’s assume a single man living in Bern and who is non-denominational. He has three 3a retirement savings accounts, each with a balance of CHF 80,000. Here are his options:

If I have invested pillar 3a retirement assets into retirement funds, what do I need to bear in mind when withdrawing the money?

Prior to payout, PostFinance’s retirement funds are either sold at the current value, or they can be transferred to a private custody account. This is why it is important to decide on your preference beforehand: have money paid out at the current fund price, or have it transferred to a free custody account. If the fund is transferred, it can be sold at any time during retirement.

How else can I save on tax?

It is essential you reconcile withdrawals from pillar 3a with the pensions or withdrawals from your pension fund and with your spouse’s withdrawals. The reason for this is that the capital you (and your spouse) withdraw in the same year from pillars 2 and 3 is added together when calculating the capital withdrawal tax.

When should I plan my staggered withdrawal of funds from pillar 3a?

The rule of thumb, as with practically everything, is this: sooner rather than later. Ideally you should take a look at your options as early as 10 to 15 years before you retire. If you have a good plan, you can retire with more peace of mind.

Let’s go back to Andreas from Aarau. What is the best course of action for him to take? Andreas wants clarity and uses PostFinance’s retirement advice to get tips from our retirement planning pros.