The Swiss government has confirmed that fundamental reforms to private third-pillar pensions will be made from the start of 2025. Here’s what you need to know about the changes, and why they are expected to make third-pillar plans far more financially lucrative.

Third pillar private pensions in Switzerland

Currently, those who want and can afford to top up their first (mandatory, AHV / OASI) and second pillar (occupational, BVG) pensions can invest in a private third pillar plan. Practically anyone who is working in Switzerland can start a third pillar plan, which will be paid out when the holder retires. The money held in these pensions is either stored or invested by banks and other providers, depending on the holders’ wishes.

Holding a third pillar plan is also highly lucrative from a tax perspective, as the money invested into the scheme every year can be deducted from your annual income when filing your annual tax return. As of 2024, employed people are able to pay 7.056 francs a year into their third pillar, while freelancers without a second pillar plan can pay a fifth of their annual income, up to a maximum of 35.280 francs. 

What’s more, the assets held in a third pillar plan are only taxed when the funds are withdrawn upon retirement.

Swiss private pension reform: What expats need to know

Now, the Federal Council has decided to make third-pillar plans in Switzerland even more lucrative by allowing holders to retroactively “top up” their pensions. Here’s how the new system will work:

Topping up third-pillar pensions possible from 2025 tax year

Starting from the 2025 tax year (filed in 2026), people will be able to top up their third-pillar pension, to fill gaps in years where they were either working without a third-pillar plan or didn’t invest the maximum amount. A 10-year limit will be imposed, meaning 2035 will be the last year that gaps from 2025 can be closed.

The maximum amount that users can top up will be the same as the maximum annual amount for the tax year, which in 2026 will be 7.258 francs. In principle, users will be able to use one tax return to top up 10 years’ worth of third pillar pension. As a result, by retirement holders will be able to access a larger pension pot.

How will topping up third-pillar pensions affect your taxes?

For example, say someone started working in Switzerland in 2025, but only started a third pillar plan in 2030. In theory, they would be able to top their third pillar plan by at least 43.490 francs in one year. The tax deduction would then apply on the year when the payment is made, leading to a massive one-off income tax saving.

The change is likely to benefit those who have recently changed to a job with a higher salary, or expats who only set up a third pillar plan a few years into their working life in Switzerland.

What are the rules around topping up private Swiss pensions?

However, several regulations need to be borne in mind. Payments can only be made for working years in Switzerland, not those abroad or when unemployed. In addition, while one year of topping up payments can be used to fill gaps in several previous years, you are unable to gradually fill the gap of one year using several years of payments.

Finally, the maximum amount of third pillar contribution for the year must be paid before any top-up payments to other years can be made.

Swiss pension forms take commentators by surprise

Such a generous tax deduction scheme came as a surprise to many, given the government’s recent efforts to cut the federal budget. The Federal Council estimates that in the end, the plan will cost 600 million francs a year, of which 500 million will be taken from the budgets of Swiss cantons. It also comes at a time when officials are planning to increase taxes on pensions once they are withdrawn.

The Federal Council argued that the change as it currently stands is a good compromise between opponents and a motion approved by parliament in 2020 and 2021. The proposal, submitted by Centre State Councillor Erich Ettlin, would have allowed workers to top up their pensions as they see fit, with no restrictions on minimum payments or working years.

By contrast, the Social Democratic Party told the Tages-Anzeiger that it was inconceivable that at a time when the government is planning cuts to childcare services, public transport and environmental protections, it would be giving high earners another way to reduce their tax burden. 

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