Swiss Pillar 3a Comparison – Which is the best in Switzerland for your pension?

Moving money into your third pillar has several benefits, from being tax deductible to having the option to pledge against a property purchase in the future. However, the money you put in the third pillar is locked in, and not as flexible as cash and other investments. But that’s to be expected for a pension fund.

That said, contributing toward a third pillar plan is generally regarded as a good move – and there are plenty of options to do so in Switzerland. Lets dive deeper.

Investing with a Pillar 3A

You have a few options when it comes to your Pillar 3A account. You can typically either have:

1. A simple free ‘sparkonto’ which will generate close to 0% interest, like a bank account. These are handy when you’ve just opened or moved funds into a new account and you are planning your next steps, but terrible to keep up with inflation and generate any growth.
2. An insurance backed Pillar 3A account – Stay away from these at all costs. Do not ever bundle life/death/disability insurance into a pillar 3A, no matter what your financial advisor says. These are the worst deals ever. You can read more about my personal experience on that here and here.
3. An invested Pillar 3A account – A lot more interesting! For most of us reading this blog, 60-65 years old is a long way away. With such a 20-30 year time horizon, it makes a lot of sense to have your Pillar 3A invested in equities and generating a long term return. And history says that could be around 7%. Usual disclaimers apply 😉

As you can imagine, there are a huge number of different funds, platforms and providers operating in the pension space. And lots of middlemen and sales sharks looking to make a fat commission. It’s best to go direct to any pension platform, avoid the salesman, and do your own research.

The good news is, technology and rapidly reduced investment costs are enabling new players to offer great options for consumers. Below I’ve listed most of these, and you can see the fee comparison to the traditional players such as UBS and Credit Suisse.

Below the table, you will see how a 1% fee difference makes an impact to your pension over 30 years – its worth checking (just make sure you are sitting down).

Take a look at some of the more popular Pillar 3A options in Switzerland via the comparison table below.

What should you look for with a Pillar 3A?

Remember, it’s up to you to decide on the important factors for you before you get started.

That said, considering the reliance of the pension in old age and the duration you’ll be investing. For me, security and fees are top of my list.

Security

In Switzerland it’s difficult to go wrong from a security stand point – regulation covers the banks and the securities should be in your name. However take your time to check any contracts, and be very careful dealing with financial advisors pushing insurance backed pensions. You’ll see from the comparison table above, even the ‘new players’ are partnering with established financial partners, so security and peace of mind are generally pretty high.

Fees

If you want to have your pension with one of the big banks, that’s totally fine. But you’ll be paying indirectly for those onsite meetings and ‘free’ coffees, ‘personalized investing plans’ and those nice glossy paper folders. In my humble opinion, it’s worth the effort to really quantify what those extra fees mean over the long term to your nest egg.

Here’s an example from the VIAC homepage, which shows the impact of having an average fee of 1.24% from the big banks.

Which is approx. 0.8% more than with VIAC:

Who would of thought a 0.8% difference in fee could make such an impact? And that’s for an individual.. not a couple.

Certainly brings some perspective on those free coffees at the bank. Try the calculator yourself. And in full disclosure – VIAC haven’t paid me to write this, nor do I receive any commission from them.

In the spirit of the pareto principle and focusing on the biggest impacts, here are some other important things to check from a fee standpoint:

• Transaction fees – Basically charged when you buy and sell. It is tricky to get transparency on these. Sometimes included in the product fee, sometimes not. Remember to ask.

 

• Foreign currency exchange – Just like on holiday you’ll get a certain currency conversion rate. If you are investing in currencies other than CHF, you’ll be paying currency conversion fees every time you buy and sell. And the banks add their fee on top, sometimes up to 1%+. Worth asking as it’s rarely published.

 

• Entry, exit and/or redemption fees – When you start an investment, the bank might take a 1-5% entry fee to cover their bonuses costs and could also charge an ‘exit’ or ‘redemption’ fee when you cash out your pension. Unfortunately these fees are often buried on the page 2 of the fund factsheet, and will vary based on your personal contract. So check your contract.