Pillar 3: should you withdraw or continue contributing to it after leaving Switzerland?

What is the Swiss 3rd pillar?

As a reminder, the third pillar forms part of Switzerland’s social security system, as defined by the constitution. It applies to all Swiss workers, regardless of their salary. How does the third pillar work? Let’s take a closer look at this complex system and its specific features.

The three-pillar system

The Swiss social security and pension system is based on three pillars:

The different types of third-pillar schemes

How can you make sense of this somewhat complex Swiss pension system? Without going into too much detail, there isn’t just one, but several forms of the third pillar:

The third pillar can therefore be taken out either with a bank or with an insurance company.

Which should you choose, 3rd pillar A or B? It all depends on your circumstances and the level of cover you require, your tax rate and the tax rules in force where you live.

When can you access or withdraw funds from the 3rd pillar?

There are several situations in which an employee in Switzerland can withdraw funds from their tied 3rd pillar (or 3A) pension plan:

For the voluntary third pillar (or 3B), the conditions for withdrawal or cancellation are more flexible. The initial withdrawal date is specified in the insurance policy, on your contract. However, it is also possible to withdraw funds from the third pillar B whenever you wish, without having to give a reason.

What is the contribution limit for the 3rd pillar in 2022?

In 2022, the maximum amount you can save into your 3rd pillar pension scheme is the same as in 2021. 

Throughout Switzerland, there are limits on the payments you can make between 1 January and 31 December 2022:

Please note: These limits apply to 3rd pillar A. The limit for 3rd pillar B depends on your personal circumstances and can be confirmed in more detail by your cantonal tax authority.

I’m leaving Switzerland: what about my third pillar pension?

Is your career in Switzerland coming to an end? If so, you will be entitled to withdraw the full amount of your tied 3rd pillar pension. When you leave Switzerland, you will often wish to continue making contributions to this pension and retirement savings scheme…

Unfortunately, you only have two options:

Is it better to reluctantly withdraw your 3rd pillar savings, or to keep contributing to it despite the high fees involved? b-sharpe offers a very simple and cost-effective solution to help you keep contributing to your 3rd pillar!

Should you continue to make contributions to your 3rd pillar pension scheme when you leave Switzerland?

In the case of 3rd pillar A, there is, in principle, no point in continuing to make contributions, as the tax benefit applies only to people who live in Switzerland or work there. In 2021, the tax benefit was even abolished for all cross-border workers who do not have quasi-resident tax status, which applies to the majority of them. In this specific case, withdrawing funds from the third pillar is therefore the best option.

In the case of 3rd pillar B, early withdrawal penalties apply if funds are withdrawn before the end of the contract term. These penalties are particularly steep (amounting to several thousand Swiss francs), and it is therefore preferable, if possible, to continue making contributions from abroad. 

However, the issue of currency exchange fees arises, as subscribers living outside Switzerland will need to contribute to their third pillar pension scheme in Swiss francs, even though they are paid in a different currency. Currency exchange transactions will therefore be necessary via a currency converter…

How do you make contributions to a 3rd pillar pension scheme if you no longer live in Switzerland?

Do you now live outside Switzerland but would like to continue contributing to your Swiss pension scheme? Here are the various options for making contributions to a 3rd pillar pension plan. 

Let’s take the most common example of someone who has euros at their disposal:

Why use an online currency exchange service?

With this final solution, the customers concerned come out on top in every respect, because:

  1. It is not necessary to hold a bank account in Switzerland
  2. There are no transfer fees (as this is a SEPA transfer)
  3. b-sharpe’s low foreign exchange margins allow you to cut your bank charges by two-thirds
  4. b-sharpe is a service with no subscription fees, no sign-up costs, and is completely secure, with £3 million in insurance cover against hacking or misappropriation of funds

Start using b-sharpe and top up your 3rd pillar pension at minimal cost, whilst making significant savings on your currency exchange transactions! 100% online, b-sharpe is easy to use: it takes just 5 minutes to sign up for our currency exchange service.

EUR/CHF exchange rate: what are the forecasts for 2022?

And with good reason: the former, which has been hit harder by inflation but is benefiting from the post-Covid economic recovery, could well rise in value against the latter, which is seen more as a store of value…

Find out what the major banking institutions are predicting regarding the movement of the EUR/CHF exchange rate over the coming months, up until the end of 2022.

Please note: The trends described in this article are, of course, merely forecasts which, although produced by the most reputable institutions, do not engage the liability of b-sharpe.

An uncertain crisis situation

The forecasts by major banks and market experts regarding the movement of the euro-Swiss franc exchange rate – which are closely monitored by Swiss and cross-border businesses – have proved particularly difficult to make in recent months. 

Whilst the global health crisis has severely disrupted the economy over the past two years, due to the numerous restrictions imposed by various European governments (ranging from the closure of certain businesses to the strictest lockdowns), the lifting of most of these restrictions at the start of the year has led to logistical bottlenecks, an inevitable consequence of a sharp rebound in demand coupled with production still hampered by health regulations and staff shortages.

Whilst economic activity and growth did indeed pick up again at the end of winter, these supply chain issues, coupled with central bank support measures, have led to widespread inflation. A generalised rise in prices inevitably impacted the foreign exchange market, but many experts at the time viewed this as merely a market blip following two years of crisis and unprecedented support from banking institutions.

However, the recent crisis stemming from the conflict between Russia and Ukraine, which has been ongoing since 24 February, has once again thrown these forecasts into disarray. With galloping inflation, particularly in fuel and food commodity prices, and an uncertain economic outlook for the two nations involved in this war, it is difficult to predict what the exchange rate between the Swiss Confederation’s two leading currencies will be by the end of 2022…

Credit Suisse’s forecasts

In early 2022, a wide-ranging study conducted by Credit Suisse among 1,100 Swiss companies provides a good indication of the outlook for the EUR/CHF exchange rate in the coming months. The study states that, of all the companies surveyed, 80% purchase some of their inputs in the single currency, whilst nearly 70% sell their products or services in Swiss francs. 

On this occasion, the economic stakeholders surveyed, as well as Credit Suisse’s foreign exchange strategists, all predict an end to the downward trend in the EUR/CHF exchange rate that has been in place since 2017. They therefore anticipate a slight appreciation of the euro against the Swiss franc: businesses are forecasting an exchange rate of 1.08 by the end of 2022 (compared with 1.05 by the end of 2021), whilst Credit Suisse takes this trend even further, forecasting a rate of 1.10.

Why is the euro expected to appreciate against the Swiss franc over the coming months? With inflation more pronounced in the eurozone than in Switzerland, it seems likely that the European Central Bank (ECB) will have to raise interest rates sooner than the Swiss National Bank (SNB). 

At the same time, the use of the Swiss franc as a store of value – which contributed to its appreciation during the toughest months of the Covid crisis – is likely to decline, logically leading to a slight depreciation of the Swiss currency. Finally, as has been demonstrated in the past, periods of economic recovery tend to favour the euro.

Update: Against all expectations, the SNB finally decided to raise its interest rates on 16 June (the first such move since September 2007), bringing them up from -0.75% to -0.25%, in order to prevent inflation from spreading.

At the same time, the use of the Swiss franc as a store of value – which contributed to its appreciation during the toughest months of the Covid crisis – is likely to decline, logically leading to a slight depreciation of the Swiss currency. Finally, as has been demonstrated in the past, periods of economic recovery tend to favour the euro.

The war in Ukraine and inflation are at the heart of market expectations

The blind spot in these forecasts is, of course, the crisis in Ukraine. Whilst Credit Suisse had already announced at the start of the year that inflation would be one of the three key factors likely to influence the exchange rate between the euro and the Swiss franc, the bank could not have anticipated an even sharper rise in prices caused by an armed conflict in Europe! 

Whilst the Swiss economy is clearly better protected against this phenomenon than the eurozone, it nevertheless called into question the SNB’s forecasts last March: the SNB had anticipated an inflation rate of +2.1% for 2022, followed by just +0.9% in 2023, whereas it had already reached +2.5% in April. There is no doubt that this is a figure to be monitored closely in order to forecast the trend of the EUR/CHF pair.

At the same time, the European Commission announced last May that it had revised its growth forecast downwards (reducing it by 1.3 percentage points to 2.7% for 2022) and its inflation forecast upwards (by 3.5 percentage points to 6.8% for the year) for the eurozone as a whole. 

These trends are entirely attributable to the war in Ukraine and cast a somewhat different light on the forecasts made in the survey conducted by Credit Suisse earlier this year. Indeed, slower economic growth in Europe and soaring inflation, particularly in energy prices, could limit the euro’s appreciation against the Swiss franc.

The health crisis, supply chain issues, inflation and now the Russia-Ukraine conflict… There is no doubt that the last two years have been turbulent on the markets! Whilst the major banks are forecasting a slight appreciation of the euro against the Swiss franc over the coming months, it is difficult to say for certain in such a context.

In any case, all banking institutions encourage businesses to hedge against currency risk in the face of market volatility. To do so, please do not hesitate to contact b-sharpe for their specialist services!