Can a cross-border worker take out a 3rd pillar in Switzerland?

Are you a French-Swiss cross-border worker, a senior manager or self-employed, keen to optimise your tax position while calmly preparing for retirement? The question of taking out a 3rd pillar in Switzerland deserves your full attention. This article sets out the possibilities, the advantages and the alternatives suited to your situation.

What is the 3rd pillar in Switzerland?

The Swiss pension system rests on three pillars:

• 1st pillar: old-age and survivors' insurance (AVS), compulsory, guaranteeing the subsistence minimum in retirement.
• 2nd pillar: occupational pension provision (LPP), also compulsory, designed to maintain your usual standard of living.
• 3rd pillar: optional individual pension provision, allowing you to top up the first two pillars for additional financial comfort in retirement.

The 3rd pillar splits into two categories:

• Pillar 3a (tied provision): savings locked until retirement, with significant tax advantages.
• Pillar 3b (free provision): more flexible, with no federal tax advantage, but capable of offering deductions depending on the canton.

Can cross-border workers take out a 3rd pillar in Switzerland?

That depends on your situation, and in particular on recent regulatory developments. Let us dive in and work out whether you can benefit from a 3rd pillar.

How the rules have changed

Since 2017, FINMA, the Swiss financial market supervisory authority, has restricted the marketing of the 3rd pillar to cross-border workers. As a result, many Swiss insurance companies and banks no longer offer this product to non-residents. Even so, some institutions continue to offer it, although the options are now limited.

Eligibility conditions

For cross-border workers wishing to take out a pillar 3a, certain conditions are essential:

• AVS affiliation: being subject to Swiss old-age and survivors' insurance.

• Income subject to AVS: receiving income in Switzerland subject to AVS contributions.

However, even where those conditions are met, access to the 3rd pillar may be restricted depending on the policies of the financial institutions.

Tax advantages and quasi-resident status

One of the main attractions of pillar 3a lies in its tax advantages. For cross-border workers, though, those advantages depend on obtaining quasi-resident status.

What is quasi-resident status?

A cross-border worker can be treated as a quasi-resident if at least 90% of their worldwide income is taxable in Switzerland. This status gives access to subsequent ordinary taxation (TOU), making it possible to deduct 3rd pillar contributions from taxable income. It is worth noting that this status is mainly recognised in the cantons of Geneva and Fribourg.

The procedure for obtaining the status

To benefit from quasi-resident status, the cross-border worker must:

1. Check eligibility: make sure that 90% of their income is taxable in Switzerland.

2. Apply for TOU: submit an application for subsequent ordinary taxation to the competent tax authorities.

This step has to be repeated every year, as the status is reassessed annually.

Alternatives to the 3rd pillar for cross-border workers

Given the restrictions and the access conditions attached to the 3rd pillar for cross-border workers, it makes sense to explore alternatives in France.

French life assurance

Life assurance in France offers flexibility and attractive tax advantages for cross-border workers:

• Favourable taxation: after 8 years, gains benefit from an annual allowance of EUR 4'600 for a single person and EUR 9'200 for a couple.
• A range of investment vehicles: access to a wide selection of investments suited to different investor profiles.
• Easier transfer: the ability to name beneficiaries freely in the event of death, with lighter taxation.

This solution is particularly well suited to cross-border workers planning to spend their retirement in France.

Luxembourg life assurance

Luxembourg life assurance gives access to investment products normally reserved for Swiss residents, along with other advantages:

• Maximum security for your funds: your assets are protected by the Luxembourg super-privilege, so if the insurer fails you are repaid before everyone else, even before the State.
• Tax optimisation: you benefit from the same favourable tax framework as in France (allowances after 8 years, exemptions on death), with more flexibility to adapt the contract to your wealth situation.
• Access to premium investment vehicles: you can invest in bespoke funds, in foreign currencies, in private equity or under discretionary management, often out of reach through a French life assurance contract.

Luxembourg life assurance contracts are generally available from EUR 250'000. That said, some insurers offer contracts with a reduced entry ticket of around EUR 125'000. It is important to note that access to certain management options, such as Dedicated Internal Funds (FID), may require a higher initial investment.

In summary…

Taking out a 3rd pillar in Switzerland as a cross-border worker is possible, but the opportunities have narrowed because of regulatory change. Obtaining quasi-resident status is essential in order to benefit from the associated tax advantages. Even so, alternatives such as French life assurance deserve consideration to optimise your pension provision and your tax position.