Can you use your 3rd pillar to repurchase LPP/BVG benefits?
Yes, it is perfectly legal. Article 3a of the Ordinance on Tax-Deductible Contributions (OPP 3) explicitly allows early withdrawal from the 3a pillar to finance a buy-in to your pension fund.
This is considered a valid early withdrawal reason, just like purchasing a primary residence or starting self-employment. You do not need to wait until retirement to unlock your 3a if you use it to cover gaps in your 2nd pillar pension.
How does an LPP/BVP repurchase work with Pillar 3a?
Step 1: Check your buy-in potential
Ask your pension fund for an updated provident certificate. This document indicates the maximum amount you can buy back, i.e. the difference between your theoretical and current credit balance.
Step 2: Prepare the 3a pillar withdrawal
Contact your bank or insurance provider managing your 3a pillar. Inform them that you wish to make an early withdrawal for a pension fund buy-in (LPP). You will need to provide the certificate from your pension fund confirming your buy-in potential.
Step 3: Partial or total withdrawal
You can withdraw all or part of your 3a pillar, but beware: for a partial withdrawal, the amount must fully cover your pension gap.
For example, if your LPP gap is 40,000 CHF and you have 100,000 CHF in your 3a pillar, you can withdraw only 40,000 CHF. You cannot withdraw 20,000 CHF to cover just part of the gap.
Step 4: Payment to the pension fund
The capital is transferred from your 3a account to your pension fund, which adds it to your retirement capital. This will increase your retirement benefits.
Up to what age can this transfer be made?
You can use your 3a pillar for an LPP buy-in up to the normal retirement age (currently 65). If you continue working beyond that, you still have an additional 5 years to complete this transaction.
Be aware that if you have a 3a insurance policy maturing within the 5 years before your retirement, this transfer will no longer be possible.
What is the taxation for this transaction?
- You pay no tax on 3a withdrawals when directly allocated to a BVG/LPP purchase
- But you cannot deduct this buyback of your taxable income
This tax neutrality fundamentally distinguishes a 3a-financed buy-in from a standard cash buy-in. With a cash buy-in, you benefit from the full tax deduction without any upfront taxation, generating a substantial tax saving.
The transfer from 3a to the 2nd pillar therefore offers no direct tax advantages. The advantage lies elsewhere.
So why use your Pillar 3a for a buyback?
Making an LPP repurchase in cash requires substantial funds, sometimes tens of thousands of francs. If you don’t have this immediate savings capacity but have a significant 3a capital built over the years, a transfer becomes a practical solution.
The 2nd pillar generally offers better protection than the 3rd pillar in case of disability or death. The disability and survivor pensions from the 2nd pillar are automatic and often more advantageous than simple death coverage in a 3a policy.
Pillar 3a or pillar 3b: what's the difference?
The difference between 3a and 3b is as follows:
The 3b pillar corresponds to your flexible savings: savings accounts, securities, cash. You can, of course, use it at any time to make an LPP buy-in, without any restrictions or special formalities.
The advantage of the 3b pillar is twofold: it remains accessible at any time and a buy-in made with these funds generates a full tax deduction. It is therefore the optimal solution from a fiscal standpoint, but it requires that you have such liquidity available.
The Pillar 3a, which is blocked until retirement unless there are legal grounds for doing so, requires a specific legal framework in order to be mobilized. Without Article 3a BVV 3, your 3a capital would remain inaccessible for a BVG purchase. The legislator created this gateway to enable this capital to be reallocated to the 2nd pillar.
The advantage of this mechanism lies in the early release of capital that would otherwise be tied up, not in any kind of "risk management". tax advantage.
When to opt for a cash repurchase?
If you have sufficient liquidity or flexible savings (3b pillar), a standard cash buy-in remains preferable. You then benefit from the full tax deduction, which can represent a tax saving of 30% to 40% of the buy-in amount, depending on your marginal tax rate.
For example, a 50,000 CHF buy-in made in cash can generate a tax saving of 15,000 to 20,000 CHF for a taxpayer with a high marginal rate. The same buy-in financed through the 3a pillar provides no tax saving.
A purchase via 3a is therefore only justified if you have no other option for raising the necessary funds, or if you wish to reorganize your pension provision by concentrating your assets in the 2nd pillar.
Check the financial health of your pension fund first
Before any buy-in, check your pension fund’s coverage ratio. A ratio below 100% indicates financial difficulties. In the case of persistent underfunding, your fund could implement remedial measures that would affect all assets, including those from buy-ins.
If your fund has a worrying coverage ratio, it's best to keep your capital in Pillar 3a, where it remains protected and accessible according to the legal grounds for withdrawal.
3a buyback vs. cash buyback: comparison table
- Criteria
- Financing via 3a
- Financing via cash flow
- Tax benefits
- Accessibility of capital
- Flexibility
- Optimum use
Maximum tax optimization
The choice between these two options therefore essentially depends on your cash availability and your medium-term wealth objectives.
Conclusion
This operation is fiscally neutral: there is no tax on the 3a withdrawal, but also no tax deduction for the buy-in. It therefore offers no direct tax advantage, unlike a standard cash buy-in.
This operation is tax-neutralNo tax on 3a withdrawals, but no tax deduction for redemptions either. There is therefore no direct tax advantage, unlike a classic cash redemption.
Its main advantage lies in the ability to mobilize significant 3a capital when you lack the liquidity for a standard cash buy-in, or when you want to focus your pension into the 2nd pillar to benefit from better risk coverage.
Before proceeding, check the financial health of your pension fund, assess your medium-term flexibility needs, and consider whether a cash buy-in might be more tax-efficient if you have the necessary funds.
Frequently asked questions
Yes, it's perfectly legal. Article 3a of the Ordinance on Tax-Allowed Deductions (BVV 3) expressly authorizes early withdrawal from Pillar 3a to finance a purchase from your pension fund. This is an official reason for early withdrawal, just like buying a home or becoming self-employed.
Pillar 3b (free savings) can be accessed at any time, and a purchase made with these funds generates a full tax deduction. Pillar 3a is normally blocked until retirement, but the legislator has created a specific exception for BVG purchases. However, buying into 3a is tax-neutral (no tax on the withdrawal, but no deduction either).
You can withdraw all or part of your Pillar 3a. In the case of partial withdrawals, the amount must correspond to your entire pension shortfall. For example, if your LOB shortfall is CHF 30,000, you can withdraw exactly CHF 30,000 from your 3a, no less. If your shortfall is greater than your 3a credit, you can withdraw the entire amount.
- Ask your pension fund for an updated pension certificate
- Contact your bank/insurance company managing your 3a
- Provide proof from your pension fund and request the transfer
- The capital is transferred directly from your 3a plan to your pension fund.
- Your pension fund adds this amount to your retirement assets
