The truth about 3b pillar accounts
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In this blog, I talk a lot about the third pillar. The third pillar is a great part of the retirement system allowing you to invest money for your old age and benefit from tax benefits.
I have also talked about the 3a life insurance trap. But I have not yet discussed an obscure part of the retirement system: the so-called pillar 3b.
So, in this article, we discuss all there is to know about the 3b pillar and how you should mostly avoid it (in its advertised form).
Pillar 3b
Unlike the third pillar (3a), the 3b pillar is poorly defined and not well understood. The reason is simple: pillar 3b is anything that does not belong to the other three pillars.
This means a savings account is part of the so-called pillar 3b. If you have a broker account, it is also part of the 3b pillar, and any other investments are part of the 3b.
So, when you have exhausted the limits of the first three pillars, your free investments are part of your pillar 3b. So, pillar 3b is not even linked to retirement!
Since it is a free investment, there are no limits or rules in the 3b pillar. You can invest as much or as little as you want and use the products you want.
The 3b pillar is as simple as that in theory. And again, in theory, there is nothing wrong with pillar 3b. And I wish we could finish this article there. But, unfortunately, we need to talk about 3b life insurance.
Life Insurance 3b
When people talk about the pillar 3b or 3b in short, they often talk about life insurance 3b. And, if you search for pillar 3b on the internet, you will find that insurance companies are the top results. This is unfortunate!
I have already talked about life insurance 3a and how bad they were. These products profit insurance companies only, not you. Your 3a money is always better with another product.
So, why do insurance companies advertise 3b life insurance? Simply because a yearly contribution limit limits the 3a life insurance. Currently, it is 7258 CHF (in 2025). So, insurance companies also offer 3b life insurance products to increase their reach.
Also, these products are frequently talked about because they are tax-deductible in some cases.
3b Tax Deductions
In most cases, you cannot deduct what you invest outside of the three pillars. But there is, unfortunately, an exception. I say, unfortunately, because this exception further complicates it and is generally not even worthwhile.
Only two cantons have tax deductions for the 3b: Fribourg and Geneva.
- In Fribourg, you can deduct 750 CHF for a single person and 1500 CHF for a married couple per year.
- In Geneva, a single person can deduct 2196 CHF (or 4434 if self-employed), and a married couple can deduct 3294 CHF (can vary if one or two are self-employed). Moreover, married couples can deduct 898 CHF per year per child (different deductions if self-employed).
In general, any tax deduction is interesting. And if you could deduct the money invested in a brokerage account, it would be a great tax deduction. However, this deduction is only possible for 3b life insurance.
If we take the example of Fribourg, the maximum deduction would be 1500 CHF. A marginal tax rate of 40% would give us 600 CHF savings per year. But this means locking money in a bad product. Your money is much better in any investment account than in 3b life insurance. Your money is even better in a bank account than in 3b life insurance.
And there is another thing that we should mention. Some financial advisors will tell you that there is another tax advantage with 3b life insurance. In some cases (hold for five years and withdraw after 60 years old), you will not get any taxes when you receive the life insurance payment.
But this is a dumb comparison. If you put this money in your broker account, you will not pay any taxes when you withdraw money since capital gains are not taxed in Switzerland. So, this is just a pointless marketing argument.
What is wrong with 3b life insurance?
Just like 3a life insurance, 3b life insurance comprises bad products. It is probably not impossible to make a good 3b life insurance product, but I have never encountered one.
The first thing that is wrong with these life insurance products is that they are sold to people who do not need life insurance. Financial advisors in Switzerland will try to sell life insurance for any reason. Having kids, a house, or a spouse is enough to justify life insurance. But the vast majority of people do not need life insurance.
Why are they sold so aggressively? Simply because financial advisors make large commissions on these products. This only is a good reason to be very careful with financial advisors.
Another thing is that these products are expensive. People put money into these products thinking that all their money will work for them. However, a significant part of what people pay into life insurance will pay the risk part of the life insurance and will not go to their savings. You can expect between 10% and 20% of the contributions will go to this part and be lost.
On top of that, the money is also not fee-free. This can highly vary, but you can expect anything from 0.50% to 2.00% fee on the invested part.
The advisors will often talk about the great returns of life insurance 3b. And they will make great projections with high returns and try to show how much money you can get. However, these are only projections. In practice, 3b life insurance (or 3a life insurance) returns are generally significantly lower than other investment products.
And when you consider the fees, the low returns, and the risk, part, life insurance products are abysmal investment products.
What if you need life insurance?
To be clear, I am not saying that life insurance is bad; I am saying the 3b life insurance scheme is bad.
There are some cases when life insurance is valuable. The primary purpose of life insurance is to protect your dependents. If a household has a single income earner, dependents may be in trouble if that earner dies. This situation is especially concerning if living an expensive life because other death benefits will not suffice.
Another example is to be able to cover debts in the absence of a high income. For instance, with a mortgage and a single earner, having a life insurance payout may significantly help the surving dependents.
If you require life insurance, pure risk life insurance is for me the best solution. These insurance policies are like other insurance, there is no capital accumulation, only premium. If you want a standard payout, you can get really decent premiums. You can get something below 500 CHF in most cases.
If you would like to learn more, you can read how to choose life insurance.
Conclusion
For me, the conclusion is clear: ignore the pillar 3b name and avoid 3b life insurance like poison. Most people discussing the 3b pillar are insurance companies and financial advisors. And these people very rarely have your best interest at heart.
These people have made it so that most people misuse the name 3b. Instead of meaning anything outside the three pillars, it has come to mean life insurance.
It is unfortunate that many people are sold 3b life insurance. This is the case for many expats coming to Switzerland that are recommended these bad products.
Two things are essential to mention, though. First, there is nothing wrong with investing your money outside the 3a. I recommend people start investing early. Then, there is nothing wrong with life insurance itself. If you need life insurance (most people do not), you can take out a life insurance policy. But avoid 3a and 3b life insurance. Instead, take a simple term life insurance.
What about you? What do you think about the 3b pillar?
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Hi Baptiste,
Thanks for another great article.
An insurance sales/advisor is telling me that there are some tax benefits for pillar 3b outside of Geneva/Fribourg – that dividends accumulated in the investment product tied to 3b insurance are tax-exempt. Do you know anything about it?
I’m trying to calculate if “pillar 3b disability insurance policy” would be worth it in a way that tax-exempt dividends would offset most of the premium on the risk part of the product.
But I’m definitely skeptical..
Thanks!
You are welcome, wiktor! I am glad you liked the article.
Yes, that’s right. Dividends inside the 3a and 3b are not taxed as income, but this is a tiny benefit; don’t fall for it. On average, you will get 2% dividends per year. On that, you can save at most 40% if you have a huge income, so about 0.8% saved per year. It sounds good, but you are losing more than that by putting money into a 3b in the first place.
If you are afraid about disability, I would recommend getting extra insurance for that particularly. You can even get a life insurance with a disability coverage.
My experience is the same. I was sold a 3b with one of the big insurance companies (Helvetia) mostly because of the tax advantage. It ended up being an investment disaster. May actual capital is not even at the 50% of the funds I have invested in it. Adding to this that it’s a complete black box – you get information about the funds once per year, no way to track expenses etc. If you need a life insurance – Better do a life insurance only, not the 3B. If I need to get a tax deduction – I better would go for a transparent 3A product that I mix with a 2nd pillar buyback. The latter depends on your company still but for taxes – it is really the most powerful one
Thanks for sharing your experience, Pietro!
It’s unfortunate that these products exist at all. As you said, there are better alternatives.
my wife and I were advised for 3b based on the outlook of buying a house and that it gives the ability to use the 3b for indirect amortisation (as we are actively looking). This made it sound very appealing & alongside that the projections would outperform a savings account as well as we are not experienced in ‘investing’ itself. Reading all this now I am quite numbed.
We are now 10 months in, both, and of course stepping out now would be at 100% loss (against a significant monthly value) as there is no surrender value yet. Any recommendations? To cancel means this full money paid in is 100% lost so this feels like over-reacting right now as the “current savings value” in the Insurance itself of course is not 0. What are the options to minimise our impact assuming we will fully step out. Should we use Teilkündigung to lower the monthly contribution and/or pause or should we simply take our BIG loss and walk away? as said, within the App seeing the investment balance, it does not look as bad to think i need to leave it. So whilst i am concluding from your opinion we should have never gone down this route, I am now in the middle of it.
Hi,
Sorry to hear that.
It’s entirely possible that 3a/3b life insurance will outperform a savings account. The main issue for investors is that it will far underperform ETFs/Funds/Stocks.
If you are not investing at all, it may not be such a bad idea. What would you do with the money if you did not put it in this 3b?
You have multiple options. You can stop it now entirely and take the 100% loss indeed. Or you can reduce the premium (potentially to zero) to reduce the money you put in this leaking bucket.
thank you Baptiste, specifically on a Sunday morning.
I will get in touch with the insurance company and dig in deep into the option to indeed reduce to the absolute minimum as I cannot pause.
One thing, which might make it even worse or better (depending upon your opinion) is that we also did start to invest – a lump sum and been paying into it monthly. This so far is bringing 3.5% on the capital invested and that 3.5% does outperform the virtual loss on 3b that we might be making annually, but it might still mean 3b is a shitty product of course. So the combination you might consider poor on both sides, although i can confirm it outperform my previous financial set-up which was not investing at all.
I will dig into your website and familiarize further with EDFs to not be tight to fees, even if i would choose the same EDFs but simply having lower fees and by taking control myself. thank you once more
Early mornings and evenings are when I answer most comments :)
Are you sure you cannot pause? In most cases, you can release the premiums. They often say you can’t until you threaten to cancel and then suddenly the option becomes available… At least for 3a this happens a lot.
Good that you started investing. In this case, you should ask yourself whether you truly need the life insurance portion and whether this really increases your chance of getting a mortgage. Maybe talk to your bank.
Hi Bapt,
I just want to say that you saved me from this scam. I was about to sign two contracts with my financial advisor, A3 and B3, with life insurance. He made it seem like a big deal and how rich I would become in reaching my retirement goals. Thank you very much!!!
Hi Mido
I am glad you were able to avoid this trap!