Last update: 17.09.2024 08:32
Is there Pillar 3a deposit protection in the event of bank bankruptcy? The global financial crisis from 2007 to 2008 and the takeover of Credit Suisse by UBS in March 2023 show us that crises happen faster than we can save our money. What about the security of pillar 3a? Is the pillar 3a account secure? And how secure is the vested benefits account? Is there Pillar 3a depositor protection? Discover some surprising answers.
What does depositor protection, deposit protection and privileged treatment mean?
When you deposit money with a bank as a customer, this is called a “deposit” in banking jargon. You are the “depositor” for the balance, which in legal terms is a claim against the bank. So what happens if a bank becomes insolvent? Then the depositor protection system kicks in. According to the Financial Market Supervisory Authority FINMA, it comprises three components.
Firstly , a payout is made from the bank’s liquid assets. Deposits up to a maximum amount of CHF 100,000 per customer are paid out immediately if the insolvent bank has sufficient liquid funds.
Secondly , esisuisse ‘s deposit protection scheme also comes into play if the secured deposits cannot be fully covered by the bank’s own funds. It is set out in Art. 37a to Art. 37k of the Banking Act1 are regulated. The Swiss Financial Market Supervisory Authority (FINMA) monitors the banks to ensure that they comply with the regulations. Among other things, the banks must hold 125% of secured and privileged assets as assets in Switzerland and provide collateral of CHF 8 billion to esisuisse.
Thirdly , the bankruptcy privilege applies. All deposits up to a maximum amount of CHF 100,000 per customer are preferentially classified in the second bankruptcy class. In the event of the bank’s bankruptcy, three groups of creditors are then satisfied one after the other. First, all claims of creditors from the first group will be satisfied in full from the remaining assets. The claims of the next two groups are then satisfied with the remaining funds:
- Bankruptcy class 1: this includes the salaries of bank employees
- Bankruptcy class 2: privileged deposits up to a maximum of CHF 100,000 per creditor; these deposits include your pillar 3a account or vested benefits account.
- Bankruptcy class 3: this includes pension assets that exceed the maximum amount of CHF 100,000 per customer as well as all other claims against the bank, e.g. from bonds issued.
Bankruptcy privilege pillar 3a and vested benefits account in the event of insolvency
Secured credit balances and privileged credit balances are not identical, as you can see from the following table.
| Insole type | Description | Depositor protection |
|---|---|---|
| “Secured” | Balances in accounts in your name that do NOT exceed CHF 100,000 per customer and bank | The deposit protection system applies to secured deposits. |
| “Privileged” (but not secured) | Assets in vested benefits or pillar 3a accounts or in vested benefits or pillar 3a custody accounts | NO deposit protection, but privileged treatment under bankruptcy law for bankruptcy class 2. |
While secured assets are deposited with esisuisse, privileged assets are merely given preferential treatment in the event of bankruptcy. Claims from privileged assets – including the pillar 3a account and the vested benefits account – are considered in the second instead of the third bankruptcy class. They are therefore paid out of the bankruptcy estate “earlier”. This at least gives you a high probability of getting your money back.
We remember:
Money at the bank is protected by the deposit guarantee up to CHF 100,000 per customer.
Pension money is not protected by the deposit guarantee. The bankruptcy privilege applies here.
How does pillar 3a deposit protection work?
Not at all. Pillar 3a account balances are only treated preferentially in the event of the custodian bank’s bankruptcy. It doesn’t matter whether you hold your pillar 3a or vested benefits account with Foundation A or Foundation B. In the event of insolvency of the bank holding the account, the bankruptcy privilege applies.
The situation is different for 3a securities. Securities in a securities custody account are also held at a bank. However, they are merely held in safekeeping by the bank, but are the property of the customer. However, unlike account balances, securities are considered special assets. They are protected in the event of the custodian bank’s insolvency and are not part of the bank’s bankruptcy estate. In the event of bank bankruptcy, they are handed over to the pension foundation.
How safe is my money with the bank in the free pension plan?
The esisuisse deposit protection scheme of the banks applies to unrestricted pension provision (pillar 3b). It protects savings of up to CHF 100,000 per depositor and bank.
Deposit protection only comes into play downstream if the bank’s assets are not sufficient to cover the claims of the privileged assets in the second bankruptcy class. This is because, similar to pension assets, unrestricted pension assets are privileged by a ranking in the second bankruptcy class of up to CHF 100,000 per customer. Anything above this amount falls into the third bankruptcy class.
We remember:
The bankruptcy privilege for unrestricted pension funds and the downstream deposit guarantee apply per customer and bank together up to a maximum of CHF 100,000. You are therefore protected in Pillar 3b up to a maximum total of CHF 100,000, even if you divide your assets between several accounts at this bank.
Our tip: Spread the risk across two banks
If you want to spread your risk, you should transfer savings over CHF 100,000 to another bank with a different business model. This way you benefit twice from the bankruptcy privilege and deposit protection.
How secure is a pillar 3a account or vested benefits account in the event of insolvency? How are pillar 3a funds protected?
Neither your assets in the vested benefits account nor the pillar 3a account are covered by deposit protection.2 Outch.
However, if a bank becomes insolvent, a total of CHF 100,000 in pension assets (including vested benefits accounts) per customer and pension foundation is privileged in the event of bankruptcy3. This bankruptcy privilege for vested benefits and Pillar 3a assets applies in addition to and independently of other deposits at the same bank.
Let’s take an example: your bank goes bust and you have both a pillar 3a and a large savings account there. This means that you are protected by the bankruptcy privilege for pillar 3a and by the deposit guarantee for the savings account. This means that a maximum of up to CHF 200,000 per customer per financial institution is privileged. Yay!
We remember:
Pension assets (pillar 3a account and vested benefits account) and unrestricted pension provision (pillar 3b) and are protected separately.
Your pension assets are also protected up to CHF 100,000 in addition to money in the unrestricted pension plan (protection also up to CHF 100,000) at the same bank.
However, it may take a little longer for you to get your money. This is because your claims from vested benefits and pillar 3a accounts will only be paid out during or at the end of the liquidation process. Of course, it is not you who receives the money, but your pension foundation with which you have vested benefits or pillar 3a. It will pay it out to you if there is a defined reason for drawing pension assets.
Is there a pillar 3a account with a state guarantee?
Yes. Some cantonal banks have a state guarantee. In the case of cantonal banks with a state guarantee, the canton ensures that the credit balances are covered at the end of the long-term liquidation process. However, the amount of the state guarantee may be limited at cantonal level, meaning that not all deposits are guaranteed. However, the deposit guarantee also applies to the cantonal banks with a state guarantee, as they are also affiliated to esisuisse. With a pillar 3a account with a state guarantee, you therefore have maximum security: first the bank’s assets, then esisuisse and then the canton cover your claims against the bank.
Which cantonal banks have a state guarantee?
Quite simply: with the exception of Vaud, Bern and Geneva, all other cantons give their cantonal banks a state guarantee for all deposits (pillar 3a account, vested benefits account, pillar 3b free pension plan, accounts).
Incidentally, this also applies to deposits that exceed the otherwise applicable maximum amount of CHF 100,000 per customer and bank in total.
So: if you want maximum security, avoid the Vaud Cantonal Bank (BCV), the Bern Cantonal Bank (BEKB) and the Geneva Cantonal Bank (BCGE) because they do not have a state guarantee.
Incidentally, Postfinance does not have a state guarantee either, even though it is a wholly owned subsidiary of Swiss Post.
What happens to my vested benefits custody account or pillar 3a securities if the bank goes bankrupt?
You may already have guessed it.
Securities are legally different from bank deposits.
A vested benefits custody account with securities or a pillar 3a securities custody account (e.g. with funds, shares or bonds) is not directly affected by the bank’s bankruptcy and is therefore not covered by the banks’ deposit protection scheme.
This is because legally the vested benefits or pillar 3a foundation is the owner of the securities on your behalf, not the bank. In the event of the bank’s bankruptcy, the foundation has a claim for surrender against the bank. For this reason, securities do not need to be protected by deposit protection or privileged treatment under bankruptcy law.
What happens to my vested benefits policy or pillar 3a insurance if the insurance company goes bankrupt?
If you have taken out a vested benefits policy or pillar 3a insurance with an insurance company, your policy is not protected by deposit protection or bankruptcy privilege in the event of the insurance company’s bankruptcy. Another form of protection applies 😉
The fact is that the claims of the insured persons form a tied and specially segregated special fund. If the insurance company goes bust, these special assets are liquidated first. Your claims will then be paid from these assets first and before all other creditors.
Outlook: Limitation of the bankruptcy privilege to CHF 100,000 will be dropped
Motion Hegglin 23.3604 of June 2023 aims to abolish the limit on privileged treatment under bankruptcy law of just CHF 100,000 in Article 37a paragraph 5 of the Banking Act. In addition, the pension assets should be paid out to the pension foundations more quickly – not only after the entire bankruptcy proceedings have been completed. This means you no longer run the risk of losing money and will receive it more quickly if the bank goes bankrupt. Both the Council of States (September 2023) and the National Council (January 2024) think this is a good thing and have unanimously adopted the motion. The Federal Council is now tasked with drafting a corresponding amendment to the law and submitting it to Parliament, which will remove the current limit of CHF 100,000 for vested benefits and pillar 3a assets under bankruptcy law. Good news! It is currently unclear when this will come into force.
Summary of pillar 3a deposit protection
Deposit protection protects your money in the free pension plan at the bank – but not your pillar 3a or your vested benefits account. However, the bankruptcy privilege applies to pension assets. This means that cash assets of up to CHF 100,000 per insured person are given preferential treatment and are treated in the second bankruptcy class in addition to your free assets at the same bank. Improvements will come, but when is unknown.
What can you do until then? Firstly, you can spread your pension assets across several foundations and thus spread your risk. This allows you to benefit from the privileged treatment several times. This is recommended for pension assets of more than CHF 100,000. So don’t put your eggs in one basket and keep several pillar 3a accounts and vested benefits accounts with different foundations. You can find out more in our comparison of vested benefits accounts.
Secondly , you can further reduce the risk of insolvency by holding securities instead of account balances. Securities in vested benefits or pillar 3a are special assets in the custody of the bank. They are not affected by the bank’s bankruptcy. If the bank goes bankrupt, your pension fund or vested benefits foundation has a claim against the bank for the return of the assets. Depending on your investment horizon, you should consider switching from a pillar 3a account to pillar 3a securities or a vested benefits account to a vested benefits custody account. This is also advantageous from a return perspective. You can find the best pillar 3a offers with our product finder.
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Disclaimer
We have taken great care with the content of this article. Nevertheless, we cannot rule out errors and cannot guarantee that it is correct and complete. This article is not a substitute for advice. We do not offer investment or tax advice and recommend that tax issues are always clarified with an expert and/or the relevant cantonal authority. We accept no liability whatsoever.
