We start with the basics: The Swiss pension system has three pillars. They ensure the financial security of Swiss citizens in old age, in case of disability, and in the event of death. This system has proven itself over decades and dates back to the establishment of AHV/IV/EO in 1948: The first pillar is state pension, the Old Age and Survivors’ Insurance (AHV/IV). The second pillar is occupational pension, or pension fund (PK): Here, both you and your employer pay an equal share. The third pillar is voluntary private pension. Contributions for the first and second pillars are directly deducted from your salary – unless you are self-employed.
Why is it especially important for women?
Women more often work part-time and interrupt their careers more frequently and for longer periods than men – for example, after childbirth. However, the Swiss pension system is not designed for this. The combination of family planning, unpaid care work, and lower wages means that Swiss women receive, on average, 35% less pension than men. Internationally, the situation is not much better: European women receive, on average, 29% less pension than men. The problem is mainly the inequality in pension funds. While the difference in AHV is less than three percent, the so-called gender pension gap in the second pillar is 60%. Therefore, private pension is even more important for women than for men.
Who can open a Pillar 3a account?
Anyone with an income subject to AHV – including those just starting their careers. Employees, self-employed individuals, and those receiving unemployment benefits can benefit. It is particularly interesting for people who work part-time. It is worth negotiating an additional amount for 3a with partners or parents. IV recipients can only contribute if they have an additional AHV-liable side income. If you have no income, you can open a Pillar 3b. We will explain what that is as well.
How much should you contribute per year?
Basically, every franc you contribute is an investment in your retirement. The amount depends on your personal situation. In 2023, the maximum amount is 7,056 francs. Self-employed individuals without a second pillar can contribute up to 20% of their annual income, up to a maximum of 35,280 francs. And don’t forget: You can deduct everything you contribute to Pillar 3a from your taxable income in your next tax return!
When is the best time to contribute?
It’s best to contribute at the beginning of the year, especially if you invest your third pillar in the stock markets. Every day counts when investing. This way, you benefit from potential gains on the stock market right from the start of the year, increasing your wealth more. This is the so-called compound interest effect. If you can’t contribute the entire amount at the beginning of the year, it’s also worthwhile to transfer a fixed amount to your third pillar monthly.
Where can you open a Pillar 3a account?
Both banks and insurance companies offer private pension plans through Pillar 3a. The best option for you depends on your goals, wishes, and life situation. Generally, if you primarily want to save for retirement, build a financial cushion, and adjust your contributions flexibly, a bank solution might be better for you. If you want additional security – for example, for income gaps due to disability or in the form of life insurance that benefits your family – an insurance solution could be suitable. Important: Most insurance companies require long-term commitments. So carefully check which solution suits you best before deciding.
Why should you invest your private pension?
You can either park your pension money in a 3a account, i.e., save it, or invest it. If you leave it in the account, your pension assets will only increase to a limited extent over the years, especially since interest rates have been minimal since the 1990s and remain low. Your wealth can even lose value over time if the inflation rate is higher than the bank interest rate. This is currently the case. Investing your money is different. Historically, stock markets have yielded an annual return of up to seven percent. What does this mean exactly? Suppose you invest 100 francs and the annual return is five percent; your wealth will grow to 163 francs within ten years.
Of course, there may be years when you lose money in the stock markets. But since your pension assets are usually invested for decades, you have good growth opportunities. It’s also not necessary to invest your entire 3a assets in stocks. You can choose how much of your money should be invested in stocks and how much should remain in the account. Generally, the younger you are, the more you can invest in stocks because your investment horizon is longer.
How much can you save in Pillar 3a?
You can save as much as you want in your Pillar 3a. There is no upper limit. However, it makes sense to open a second or even a third Pillar 3a account from a certain amount. We recommend a second account from an amount of 50,000 francs. The advantage: You can withdraw the money in stages when you retire and save on taxes.
When can you withdraw the money?
Your third pillar is supposed to secure you for retirement. So, it makes sense to keep the money in the pension as long as possible. Usually, you can only withdraw it five years before you reach retirement age. However, there are life situations where you can withdraw the money earlier. This is the case if:
- You become self-employed
- You move abroad
- You buy a home and need money for financing
- You need to repay a mortgage
- You receive a full IV pension
What else should you watch out for?
An important point is administrative fees. If they are too high, they can eat up a significant portion of your returns – your profits – over the years. It’s good if the fees are less than one percent. If they are higher, switching might be worth it.
What is Pillar 3b?
Pillar 3b is the so-called free pension. Free because there are relatively few rules, and you can decide most things yourself. You decide how you want to save, how much you contribute, and when you withdraw the money. Pillar 3b includes money and investments of all kinds, such as a stock portfolio, funds, a savings account, property, or life insurance. Important: Anyone can have a 3b. So you can also save for retirement if you have no AHV-liable income from employment.
What distinguishes the ellexx 3a?
Together with Bank Vontobel, we offer the ellexx 3a, with which you can save for your future in a meaningful way. Sustainability criteria are considered in the investment process – meaning Vontobel’s team selects companies based not only on their economic performance and security but also on how they treat the environment, people, and society. You can start with just one franc, and from 500 francs, your money will be invested. Our 3a works entirely online. You pay 0.48 percent bank fees per year. Product costs vary depending on the investment strategy and are a maximum of 0.26 percent of the pension assets. The fees, therefore, amount to a maximum of 0.74 percent.
Samantha Taylor
