Pillar 3a guaranteed savings: Secure and profitable at the same time

Are you familiar with Pillar 3a Guaranteed Savings? It’s a new pension solution that combines security and potential returns. You get at least your payments back when you retire. At the same time, you have the chance of higher returns through equity investments. Find out how you can benefit from this balanced pension strategy.

Are you familiar with the 3a savings account, 3a securities or 3a policies? A new option has been available since 2024: pillar 3a guaranteed savings. It is a special form of private pension provision. Imagine a safe into which you pay CHF 5,000. You’ll get at least your money back later, maybe even more. Sounds good, doesn’t it? The catch: the guarantee only applies when you retire. Before that, you get the current market value.

Pillar 3a guaranteed savings protect you against losses on payout. At the same time, you benefit from rising prices. You can also deduct the deposit from your taxes – as with other 3a solutions.

This new form of provision combines security with potential returns and tax advantages.

You may be wondering how pillar 3a guaranteed savings differ from other pension options. Compared to traditional 3a accounts, guaranteed savings offer significantly more attractive interest rates, while at the same time entailing less risk than 3a securities investments.

The classic 3a savings account offers secure but low interest rates. Toni, 32, from Bern uses it with 0.6 % interest for his house purchase. His money is safe, but hardly grows.

3a securities promise higher returns by investing in shares, bonds and more. Sarah from Basel chose this option. She accepts the risk as she is investing for the long term.

The 3a policy combines savings with insurance cover. It pays out in the event of death or disability. Marc, 40, from Lucerne, uses it to protect his family and mortgage.

Pillar 3a guaranteed savings are somewhere in between. It offers more return than a 3a account, but less risk than securities. It costs a little more because the guarantee has to be financed. Unlike the 3a policy, there is no insurance cover. Ben, 28, from Zurich, uses it because he is not familiar enough with securities and investments and is afraid of the associated risk.

The main advantage of 3a guaranteed savings is that you get at least your deposit back. This security is lacking with securities and some policies.

Pillar 3a guaranteed saving is as simple as a 3a savings account. You pay your desired 3a amount into the Bench 3a provider and select the guarantee level, for example 80%. This means that 80% of your deposit amount is fully guaranteed at the time of retirement.

But how exactly is this possible? How can such a guarantee be promised? In terms of financial mathematics, it's quite simple. (Attention, now it's getting a bit technical 😊). Perhaps you know what bonds are? Well, bonds have a nominal value and are tradable. And most bonds have an interest coupon, around 1.25 % fixed per year. You then receive the interest annually.

In the financial world, however, there are also so-called zero-coupon bonds. To understand guaranteed savings, it helps if we take a closer look at the concept of zero-coupon bonds. These are special savings products. The buyer of a zero-coupon bond purchases it at a price that is below the nominal value. There are no interest payments during the term of the bond until maturity. This is the reason why the bond is called a "zero-coupon" bond - there is no interest coupon. At the end of the term, which is often several years, the buyer then receives the full nominal value.

And what does this have to do with pillar 3a guaranteed savings? 🤨 A lot. If you decide - let's say in 2024 - to opt for an 80% security level for repayment in 2034, the bank will hedge part of your deposit with a ten-year term deposit, which will be repaid at the time of your retirement (i.e. 2034). And how much will it pay back? Exactly enough so that you receive an amount in 2024 that corresponds to 80% of your deposit in 2024.

Voilà, as simple as that. You now understand how the promised guarantee works. And that it's not just an empty promise. But you don't need to worry about all the investment details - because your provider handles everything in the background with its partner bank and gives you the guarantee.

But wait a minute! It won't all be used to secure the guarantee in 2024. What happens with the remaining amount? 👉 The bank uses the remaining amount to buy investments with higher returns, such as shares.

However, both the zero-coupon bonds and the shares fluctuate in value during the term until you retire. The value may be higher or lower than the amount you pay in. This is the reason why a provider can only promise the guarantee level on the maturity date. Only then will 100% of the agreed guarantee level be returned to you as cash.

Until then, the price of the bond and shares will fluctuate. The value may be higher or lower than the amount you paid in. But you will certainly get at least your money back when you retire. You will probably even get a little more if the capital markets develop as they have in recent decades. Check? Check! ✅

With a classic 3a savings account, you receive annual interest. However, this is not guaranteed for the entire term. The provider can change it at any time.

Pillar 3a guaranteed savings work differently. There is no fixed interest rate. Instead, your money is divided up. One part is used to secure your guarantee. The other part flows into yield-bearing investments, such as Swiss equities in the case of bench. This is your return engine.🚀 Your return opportunity is between just under 2 % and just over 3 % per year, depending on the guarantee level you choose. The exact amount depends on two factors. Firstly, how the shares perform. And secondly, how the interest rate level affects the value of the zero-coupon bonds.

You can see your potential return in the Bench 3a app. For me, the chances were like this:

• 1.0 % with 100 % guarantee
• 2.3 % with 90 % guarantee
• 3.3 % with 80 % guarantee

These figures are based on the past performance of the Swiss equity market and correspond to the median expectations. Median means that 50 % of the values have turned out better and 50 % worse. Of course, returns may turn out differently in the future, nobody knows. 🤷🏻

By comparison, a normal 3a account, which I recently reviewed, currently offers 0.61 % interest per year. Pillar 3a guaranteed savings therefore have the potential for significantly higher returns.

Pillar 3a guaranteed savings occupy a middle position between the 3a account and 3a securities. We will now show you the most important differences.

• Guaranteed savings offer higher expected returns than a 3a account.
• The interest rates on 3a accounts are often only just above normal savings accounts.
• You can expect better returns with guaranteed savings.

• Guaranteed savings offer more security but lower potential returns than securities.
• With securities, you invest in various asset classes such as shares and bonds.
• Securities can bring higher returns, but are also riskier.
• With guarantee savings, you get at least the agreed guarantee level back.

• Return expectations are rising, from 3a accounts to guaranteed savings and securities.
• The risk increases in the same order.
• Guaranteed savings offer a capital guarantee on the agreed date.
• With securities, you can benefit from price gains, but you can also suffer losses.

Guaranteed savings therefore combine security with moderate potential returns.

The guarantee with Pillar 3a Guarantee Savings is very reliable. As with interest payments from Swiss banks or liability insurance payouts, providing and financing guarantees is a common business model in the financial sector. Bench 3a has now innovatively transferred this concept to pension provision.

One major advantage is transparency: you know from the outset exactly what minimum amount you will receive at the end of the term. Bench 3a offers a new type of pension solution. Instead of insuring against personal risks such as death or disability, it protects against fluctuations on the capital market.

The guarantee is solidly financed by a combination of zero-coupon bonds and equity investments, as explained above. A thorough investigation into the security of Bench 3a revealed no concerns.

Overall, Pillar 3a Guaranteed Savings appears to be well secured and trustworthy. It offers an innovative mix of security and potential returns for your retirement provision.

In our view, Pillar 3a Guaranteed Savings is suitable for pension savers with various motives:

• Security-oriented savers benefit from the capital guarantee at the subscription date. They can let their money grow without having to fear losses. This option is ideal for people who avoid market fluctuations but do not need expensive insurance for death or loss of earnings.
  Long-term planners can plan their retirement better. Guaranteed savings offer both growth opportunities on the capital market and security over the capital available for retirement.
• Newcomers to retirement provision will find a good balance here. It offers more returns than a 3a savings account without being exposed to the full stock market risks. This is particularly attractive for people with little investment experience or little confidence in the capital market.
• People with fixed savings goals can use guaranteed savings to achieve certain financial goals. The guarantee level provides clarity about the minimum amount that will be available at a certain point in time, for example for a mortgage amortization or a property purchase.
• Guaranteed savings can also be interesting for people approaching retirement. It makes it possible to achieve slightly higher returns in the last few years before retirement than with a traditional 3a savings account, without taking on too much risk.

Summary: Pillar 3a guaranteed savings

Pillar 3a Guaranteed Savings offers an innovative solution for private pension provision in Switzerland. It combines the security of a traditional 3a account with the potential returns of securities investments.

The main advantage is the capital guarantee at the time of retirement. Depending on the guarantee level you choose, it secures between 80 % and 100 % of your payments. At the same time, you can benefit from price increases on the stock market. This enables potential returns of between 1 % and 4 % per year - significantly more than with conventional 3a accounts.

The way it works is based on a combination of fixed-interest investments for the guarantee and equity investments for the return. As with other 3a solutions, you can make a 3a tax deduction for the deposits.

In our view, 3a guarantee savings are particularly suitable for security-oriented savers, long-term planners and newcomers to retirement provision. Compared to 3a securities, it offers more security, while promising higher earnings prospects than traditional 3a accounts. Overall, Pillar 3a Guaranteed Savings is an attractive option for people who want to optimize their retirement provision without taking on too much risk.

Last update: 30.11.2024 19:30