Last update: 17.09.2024 08:34
What are the best tips and tricks for your pillar 3a? After all, you’re putting a lot of money into it. But many people make unnecessary mistakes and give away a lot of money. We’ll show you the 10 mistakes you can easily avoid in pillar 3a. Because we think you can easily learn from other people’s mistakes.
Mistake #1: Starting too late with deposits
Almost one in two young people (44%, age group 18-30) do not have a pillar 3a. This is shown by facts from the Raiffeisen pension barometer on the third pillar. We often hear from young people that it is still too early to save for retirement. That is still a long way off and they will still have time to take care of their old-age provision later. By contrast, 4 out of 5 older people have a pillar 3a (80 %, age group 51-65).
The only problem is that every second person misses out on many years in which the compound interest effect does not boost their assets. And this effect is massive.
Take the example of Philipp (25) and Daniel (45). They both start saving at the same time and pay in the same amount. Philipp ends up with three times more assets than Daniel. What’s more, Philipp is already a wealth millionaire 5 years before the current retirement age. However, he has only paid in just under a quarter of his assets. The remaining three quarters are compound interest. Even though it may be difficult, avoid making the mistake of starting pillar 3a at a later date. Now is good. NOW.
Error #2: Do not use the maximum amount
According to the Swiss Pension Fund Association, the average investment amount in 2018 is CHF 3,400, which is well below the maximum amount. Mr. and Mrs. Swiss are therefore often not making full use of the maximum Pillar 3a amount.
This is confirmed by the data from the 2019 Pension Barometer. Half pay in the maximum amount, but a quarter pay in little or almost nothing. Men, older people and those who own their own home pay above-average amounts into pillar 3a.
What are the possible reasons for this?
- “I forgot” does not apply to you. You can solve this with a monthly standing order at the beginning of the month. Or you can let our pillar 3a pacemaker remind you free of charge.
- Would you rather live today than tomorrow? Then read this article.
- Part-time and little money? Fair point. But think about it, because a good part of your deposit will be paid for by tax savings. Depending on your personal situation and place of residence, this can amount to between 200 and 400 francs per 1,000 francs paid in. 😯
Our pillar 3a tips: Get a free reminder to pay in
With the pillar 3a timer, you’ll never miss your pillar 3a payment again. We’ll remind you to pay into your pillar 3a free of charge. Simply enter your next steps below. Depending on the reminder cycle you choose, we will send your text entry in the “My next steps” field 30, 90 or 365 days later. And of course: you’ll also find a link to unsubscribe in every email 😉
Mistake #3: Don’t pay in until the end of the year
Quickly paying into pillar 3a at the last minute at the end of the year? You’ve done a good job of putting that away, tschakka!
But it gets even better. With a little tweak to your habits, it gets even better. Reto pays into his pillar 3a at the beginning of the year instead of the end. Because he does this regularly, he ends up with around 15 % more in his account. That’s a seventh more. Best wishes from compound interest.
Mistake #4: Don’t separate saving and insuring
Current figures from the Pension Barometer 2023 also show that every second person (45.7 %, 2023) puts their money into a 3a insurance policy.
Oops. One principle of financial planning is to keep insurance and savings separate. In pillar 3a terms, this means thinking very carefully about whether you really need life insurance or insurance to pay the premiums.
This is because brokers sometimes earn 100% of their income from acquisition commissions. They get a big handshake from the insurance company when you take out your 3a insurance policy. Logically, the insurance company first offsets the commission against your deposits. That’s why the so-called surrender value (“how much money do I get back when the insurance is terminated?”) is usually zero in the first 2-3 years. Apart from that, your initial capital does not earn interest. And if you decide to terminate the insurance prematurely, part of your paid-in capital is gone. That’s the acquisition commission …
Mistake #5: Using an account instead of securities
In 2022, pillar 3a held total assets of around CHF 140 billion. Banks manage around two thirds of this, with insurance companies managing the rest. Of the total 3a assets over 40 % are in low-interest 3a savings accounts. Apparently, most people are opting for security instead of additional income. The following chart shows you where the 3a capital currently lies. The data evaluation from another source naturally differs by a few percentage points from the survey results of the pension barometer, but the messages are the same.
And? Well, the decision to opt for “security” leads to a real loss of purchasing power due to inflation. This is a shame and actually “wasted money”, because the long investment horizon would be ideal for exploiting the substantially higher potential returns of an investment in securities.
Let’s take a look at the financial consequences using the example of three friends Sandra, Corinne and Alex. With his securities solution, Alex has built up almost 20% more assets in pillar 3a over the last 10 years since 2009 than Corinne, who has invested in a pillar 3a account. And Alex has 70 % more than Sandra, who had a savings account instead of pillar 3a. So, as a rule of thumb, you can remember: with securities in pillar 3a, there is significantly more in it, but you have a greater risk of fluctuations in value. You should have an investment horizon of 7 to 10 years.
Mistake #6: Not optimizing returns on savings accounts
In recent years, interest rates on pillar 3a savings accounts have continued to fall. With the interest rate turnaround, they have risen in 2023. If the pillar 3a account is your partner of choice, it is therefore worth taking a look at the current interest rates offered by other providers.
Don’t make the mistake of not optimizing returns in pillar 3a. This is because the spread at the end of 2023 is between 0.26% (“nothing”) and various providers with interest rates of over 1.4%. Even small differences in interest rates make a big difference over a long investment horizon due to the compound interest effect. Switching your pillar 3a account to a bank or digital provider with a higher interest rate is easy. This is possible at any time and usually free of charge.
Mistake #7: Saving everything in one pillar 3a account
You can pay into pillar 3a tax-free up to the maximum amount. When you withdraw it later, you will have to pay tax on the assets. A greatly reduced tax rate applies. It therefore makes sense to stagger your third pillar withdrawals over several years. That way you break the tax progression when you withdraw. So far, so good. And?
A staggered withdrawal is only possible if you have several accounts . This is because you can only ever close a pillar 3a account in full. And you cannot subsequently split an account into two accounts. You let others make the mistake of keeping only one pillar 3a account. By the way, by account we mean both the pillar 3a savings account and the pillar 3a securities solution (and also the pillar 3 insurance policy, if you have one).
Our pillar 3a tips: Discover more about the 5-account rule
Splitting pillar 3a assets: is that possible?
How many 3a accounts make sense?
Mistake #8: Paying too high fees for securities solutions
A lot has changed in asset management over the last decade. Passive investment products, so-called index funds and ETFs came onto the market, which have much lower costs than active investment products. Passive products have also been increasingly used in pension provision for a number of years.
Many people do not realize that they are taking a big risk when choosing actively managed funds. Probably very few of us play “Russian roulette”, a potentially deadly game of chance. But by choosing active funds in pillar 3a, you are doing just that, as we explain in another article. Because finding the right active fund is like playing Russian roulette: Over a 10-year period, only 2 out of 100 actively managed funds outperform their benchmark index. The reason for the poorer performance of active funds over longer periods is their high costs. The fees eat into your returns.
With a pillar 3a with securities, the cost difference over the long investment horizon adds up quite a bit. In Reto’s case, he ended up with around 30% more assets with the passive product. And that’s only because of the lower fees! We think: don’t play Russian roulette with active products in your retirement provision. Look for a favorable passive solution.
Our pillar 3a tips: Use the product finder
Unbelievable – most people pay far too much for their pillar 3a and get too little return. Are you one of them? Find out which pillar 3a solution with securities suits you best with just a few clicks in our free 3a comparison. View the profile of the providers. Or click directly through to the provider.
Mistake #9 choosing the wrong solution
Today, almost half still rely on 3a savings accounts. An account can make sense if equity capital is to be saved for the purchase of a property or if the investment horizon until the assets are withdrawn is short. However, the returns are very low and, taking inflation into account, there is usually a real loss of purchasing power on the savings.
Others rely on insurance policies, committing themselves to decades-long savings contracts, accepting meagre returns and little flexibility. Such policies are often taken out out of fear of the risks of occupational disability or death. But firstly, no one who has no maintenance obligations or loans needs to insure themselves against death and secondly, these risks can be insured separately outside of pillar 3a as required if an insured event occurs (e.g. children or mortgage). As a rule, it makes sense to clearly separate insuring and saving and to save with low-cost, high-yield investments.
For a long-term investment for retirement provision, we therefore believe that securities solutions with high equity ratios are a sensible solution for most pillar 3a savers with an investment horizon of more than 10 years.✨
Mistake #10 not dealing with retirement provision
A study conducted as part of the Swiss labor force survey shows that it is not because of money that employed people do not pay into pillar 3a. Many do not bother with pension provision and simply rely on the state. A classic mistake. This is because they are not aware that the state pension systems (AHV and mandatory occupational benefits insurance) will only provide basic security in old age and only if the maximum contributions have been paid in for life.
In order to maintain your accustomed standard of living in retirement, it is essential that you have your own private pension provision, at least with pillar 3a and ideally also a voluntary pension (pillar 3b).
Summary of pillar 3a tips and tricks
In summary, you can avoid common mistakes when investing in pillar 3a quite easily. Start early, pay in the maximum amount at the beginning of each year, invest in securities with passive products – if the investment period allows – and divide your savings into several accounts in good time. That’s it. Then you’ll get the most out of it. No magic, right?
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