You can either build up your pillar 3a savings in Switzerland with a bank or through insurance. However, the jury’s still out on which solution is better. The fact is that one person in two has a plan in place to secure their own financial future. The figures clearly show this in black on white: in 2019, around 60% of working people in Switzerland regularly (53%) or occasionally (6%) made payments into a pillar 3a account. It’s also a fact that, in 2018, the handsome sum of 123.3 billion CHF was invested via pillar 3a at banks and insurers. Of this figure, 77.5 billion CHF was being held in savings accounts and investment accounts at banks (just under 63%). 45.7 billion CHF was invested in life insurance (37%).
But what do banks actually offer that insurers don’t, and vice versa? And even more important: which of the two options reflects your own personal style?
Option 1: the flexible bank
You can pay any amount up to the maximum threshold permitted by law into a pillar 3a account at any bank. Afterwards, you can either leave the cash sitting in an account or invest it via a pillar 3a custody account. A little tip: considering the zero-percent or even negative interest rates on the market at present, the savings account option is not a good idea at all if your long-term aim is to grow your money.
A bank offers a certain degree of flexibility, as you can freely choose how much you want to pay in, and when. You can also pause your payments whenever you like, for instance, if you become unemployed. If you would like to benefit from higher returns (and who wouldn’t?), you can switch from a savings account to a custody account. And you can also switch back at any time. In addition, you can transfer your pillar 3a account to another bank without any restrictions. For instance, if you would like to transfer your current pillar 3a account to Yuh 3a, all you have to do is fill in our PDF form and submit it to your pillar 3a account provider. From then on, everything is dealt with (almost) like magic behind the scenes.
And there’s also the icing on the cake: if you are the proud holder of more than one account or custody account, you can also shift savings between them. This means that you can also achieve a tax benefit after you retire.
A bank offers a certain degree of flexibility, as you can freely choose how much you want to pay in, and when. You can also pause your payments whenever you like, for instance, if you become unemployed. If you would like to benefit from higher returns (and who wouldn’t?), you can switch from a savings account to a custody account. And you can also switch back at any time. In addition, you can transfer your pillar 3a account to another bank without any restrictions. For instance, if you would like to transfer your current pillar 3a account to Yuh 3a, all you have to do is fill in our PDF form and submit it to your pillar 3a account provider. From then on, everything is dealt with (almost) like magic behind the scenes.
And there’s also the icing on the cake: if you are the proud holder of more than one account or custody account, you can also shift savings between them. This means that you can also achieve a tax benefit after you retire.
Option 2: the safe insurer?
Pillar 3a savings can be used to purchase not only pure life insurance policies offering survivors’ benefits but also mixed life insurance and private pension solutions («life insurance endowment plans»). The latter option combines saving for a pension with an insurance policy. An annual savings amount is specified under contract, with part of it invested in building up a pension. The rest goes to your insurer in the form of an insurance premium. As you’ve no doubt already noticed, this means that the amount invested in a pension is slightly lower.
If, for any reason, you are unable to work, the insurer will continue making the annual payments on your behalf.
Insurance cover doesn’t come cheap. If you decided to split up the savings component and the insurance component by purchasing two separate products, you’d probably end up paying less. While the insurance premium is pretty low at the start, over the entire investment horizon, insurance premiums end up weighing down the final amount. The effect of compound interest works in a negative way here.
And another drawback: you have to pay the contractual premium every year until the age of 59 if you are a woman or 60 if you are a man. Enforced saving does mean it’s more likely you’ll achieve your savings goals. That said, if flexibility is your thing, you won’t have much elbow room with a pillar 3a insurance solution.
What happens if I want to switch from a pillar 3a insurance policy to an account with a bank? You should clarify this aspect properly before entering into a contract, as it can be expensive to back out of the agreement in some cases. You’ll also have to pay early termination penalties and will most likely get a lot less back than you initially paid in. That’s going to be painful, especially if you want to put the cash towards buying a home, say. However, depending upon the insurance policy, it’s possible that the savings accumulated can be withdrawn in order to finance the purchase of an owner-occupied residential property.
If, for any reason, you are unable to work, the insurer will continue making the annual payments on your behalf.
Insurance cover doesn’t come cheap. If you decided to split up the savings component and the insurance component by purchasing two separate products, you’d probably end up paying less. While the insurance premium is pretty low at the start, over the entire investment horizon, insurance premiums end up weighing down the final amount. The effect of compound interest works in a negative way here.
And another drawback: you have to pay the contractual premium every year until the age of 59 if you are a woman or 60 if you are a man. Enforced saving does mean it’s more likely you’ll achieve your savings goals. That said, if flexibility is your thing, you won’t have much elbow room with a pillar 3a insurance solution.
What happens if I want to switch from a pillar 3a insurance policy to an account with a bank? You should clarify this aspect properly before entering into a contract, as it can be expensive to back out of the agreement in some cases. You’ll also have to pay early termination penalties and will most likely get a lot less back than you initially paid in. That’s going to be painful, especially if you want to put the cash towards buying a home, say. However, depending upon the insurance policy, it’s possible that the savings accumulated can be withdrawn in order to finance the purchase of an owner-occupied residential property.
Which one’s better?
If, by any chance, clairvoyance isn’t part of your skillset, you simply can’t know what life might have in store for you. One thing’s certain though: modern career paths with the odd break and flexible life plans are part and parcel of this day and age. The news that banking solutions involving securities are simply the more attractive option for many people won’t, therefore, come as a shock.
At any rate, pillar 3a bank accounts have grown much more strongly than insurance solutions over the last two decades in Switzerland.
If you want to ensure peace of mind for your family, a pillar 3a life insurance solution might, however, make a lot of sense. It’s a good idea to find out before taking out your insurance whether, and, if so, under what conditions, it’s possible to reduce the premiums to a minimum.