Third pillar

What it means

The third pillar is supplementary pension saving. It is voluntary, both employee and employer can contribute, and both get tax relief up to statutory limits.

For the employer the contribution is deductible up to a cap set as a percentage of the employee’s pay. For the employee their own contribution is a tax-free allowance up to a statutory amount.

Unlike the second pillar, which takes part of the compulsory contribution, the third pillar is paid on top of the statutory levies. The money is managed by a supplementary pension company, and payouts from it are not part of the Social Insurance Agency pension and do not reduce it.

How it works in practice

As a benefit it beats the same money added to salary: a third of a pay rise goes to contributions and tax, while a contribution within the cap reaches the employee’s account in full.

Setting it up is simple: a contract with a pension company and a deduction in the payroll system. The terms sit in a collective agreement or an internal rule.

For employees doing work classified as risky, the employer’s contribution is compulsory rather than a benefit. When a client classifies a workplace as risky under its health and safety rules, we set up the pension company contract and the contributions from that day.

What to watch out for

Contributions above the cap are non-deductible for the company and taxable for the employee. It is also a long-term commitment: stopping contributions reads to staff as a pay cut.

Early withdrawal as a surrender payment is taxable income and the tax is taken as a withholding tax. An employee who treats the third pillar as a quick reserve therefore receives less than the statement shows.