What is a beneficiary clause?
The beneficiary clause is a provision by which the holder of a pension or insurance contract designates the person or persons who will receive the benefits in the event of death. Within the framework of the 3rd pillar, it makes it possible to transfer the saved or insured capital directly to the chosen beneficiaries, without going through the ordinary succession. This mechanism has two major advantages:
- Fast and easy: the insurer or pension fund pays the capital directly to the designated beneficiaries.
- Targeted protection: it is possible to favor certain close relatives (e.g. a spouse, life partner or children), irrespective of the legal division of the estate.
On the other hand, this freedom is regulated. The pillar 3a follows a legal order set by the OPP 3, while the pillar 3b offers greater flexibility. In both cases, the beneficiary clause must be drafted carefully, as it can have consequences on the respect of the inheritance shares reserved for legal heirs.
The beneficiary clause in Pillar 3a
- 1. The surviving spouse or registered partner,
- 2. The direct descendants, the person who has lived in cohabitation with the deceased for at least five years, or the person whom the deceased substantially supported,
- 3. The parents,
- 4. Brothers and sisters,
- 5. other legal heirs.
On the other hand, the surviving spouse or registered partner remains priority as long as the law has not changed. It should be noted that Parliament and the Federal Council are currently reviewing a reform of OPP 3 which should offer more flexibility in the designation of beneficiaries starting in 2027, notably the possibility of prioritizing children even in the presence of a spouse.
On the other hand, the spouse or surviving registered partner remains priority as long as the law remains unchanged. Note that Parliament and the Federal Council are currently examining a OPP 3 reform which should offer greater flexibility in the designation of beneficiaries from 2027, notably the possibility of giving preference to children even in the presence of a spouse.
Beneficiary clauses and inheritance in 3a
The assets of pillar 3a are paid directly to the beneficiaries designated by law or by the beneficiary clause, outside the estate. This means that the capital is not divided within the ordinary succession and is paid without delay to the rightful claimants. However, there is an important limitation:
- The cash surrender value of a 3a insurance policy (e.g. endowment insurance) can be taken into account when calculating the reserved portions.
- If the rightful heirs (children, spouse, parents as the case may be) feel that their minimum rights have not been respected, they can enquire a reduction action. In this case, it is not the insurer who is concerned, but the designated beneficiary who must compensate the injured heirs up to the surrender value.
Conversely, in the case of a pure risk insurance (simple death cover with no surrender value), the benefit paid out is in principle not subject to reduction. In this case, the beneficiary receives the full death benefit without any possibility of dispute.
Taxation of 3a capital in the event of death
From a tax perspective, the capital paid to the beneficiary is subject to a tax on lump-sum benefits, levied separately from other income and at a reduced rate (1/5 of the tax).
- This tax is progressive but at a reduced rate, and depends on the insured's canton of residence at the time of death.
- It applies to the beneficiary who receives the benefit, even if the capital is contested in an action for reduction.
The beneficiary clause in Pillar 3b
Unlike Pillar 3a, Pillar 3b (unrestricted pension provision) leaves a almost total freedom in the designation of beneficiaries. The policyholder can name anyone he or she chooses: spouse, partner, children, parents, friends, or even a legal entity such as a foundation or association. There are, however, two important limits to this flexibility:
- Hereditary reserve: as with 3a, the surrender value of an endowment policy can be included in the calculation of the reserved portion. Heirs protected by law (spouse, descendants, parents in certain cases) can therefore bring an action for reduction if their rights are impaired.
- Premiums paid to 3b are not not deductible of taxable income (with exceptions in certain cantons).
- The capital received by the beneficiaries may, depending on the conditions, be fully exempt (e.g. life insurance with a minimum term of 5 years and payment after age 60).
- The cash surrender value of a 3b policy must be declared aswealth tax every year.
A special case exists for term life insurance without savings, as these have no surrender value. This means they are not included in the calculation of the reserved shares, and the beneficiary receives the full death benefit, without any possibility of reduction.
Frequently asked questions
3a is strictly regulated by the OPP 3: the order of beneficiaries is set by law, with limited scope for personalization.
The 3b option is much freer: you can designate any person or entity as beneficiary, subject to compliance with any reserved portions.
Not automatically. They must meet specific conditions (uninterrupted cohabitation for at least 5 years, or responsibility for joint children) and be designated in writing as beneficiaries.
In principle, no: it is paid directly to the beneficiary. However, the cash surrender value of a savings policy can be taken into account when calculating the reserved portions.
