There are a lot of retirement savings plans out there, and as a customer it’s not easy to keep track of them all. However, to really be able to make your retirement dreams come true with your pillar 3a you need to choose the right solution for you at an early stage.
You can provide for your retirement and save on taxes at the same time with both an insurance solution as well as with a bank solution for your pillar 3a. As well as this, the withdrawal options for tied pension assets with the bank as well as with the insurance solution are limited by legislation to the same extent. But which model is suitable for whom?
With banks, the interest rate on the pillar 3a account varies depending on the interest rate environment. This means that pillar 3a accounts usually have preferential interest rates compared to savings accounts. With traditional life insurance policies, the technical interest rate is defined when the policy is concluded and does not change until the policy expires. If you take out a traditional pillar 3a life insurance policy at the moment, the technical interest rate is low. This is why life insurance companies offer alternatives such as unit-linked, index-linked or hybrid insurance policies. They are a combination of risk hedge and financial investment. As well as interest rates, customers with traditional insurance solutions also benefit from an insurance surplus due to a positive business performance. The amount of this is determined each year and cannot be guaranteed.
Both bank and insurance solutions offer the option of investing pillar 3a savings in securities. Here, the 3a savings are invested in investment funds (bank and insurance solutions) or in structured products (insurance solutions only). The higher the equity component in particular, the higher the potential price gains. Due to the higher volatility at a higher equity allocation, the risk of price losses also increases.
Retirement planning and hedging with a life insurance policy:
Pillar 3a savings via an insurance solution are always linked to at least one biometric risk such as death and/or disability. This means that in addition to the savings component, the risk of death and/or disability is also insured. For the insurance component, part of the insurance premium is used to cover the risks, and the other part – minus the administrative costs – goes into the savings component. Depending on the insurance solution, the savings portion only earns interest at the technical interest rate or is invested in investment funds. Combinations of these are also possible, or life insurance products for example that guarantee an endowment sum of 80%. These product strategies are usually implemented with structured investment products and involve additional guarantee costs. Life insurance in your pillar 3a can be financed with periodic premium payments as well as through a single premium. The contractual term is usually very long (until retirement), and additional costs may be incurred in the event of early termination.
Flexibility and cost transparency with a bank solution:
If you have a pillar 3a in the form of an account or securities solution, you can decide how much you want to pay in each year (up to the maximum permitted by law). There is no minimum deposit amount and deposits can be made from CHF 1. In addition, it is possible to switch from an account solution to a securities custody account or vice versa at any time. There is also nothing to stop you from changing your investment strategy during the course of the year. With a bank solution, it is possible to open multiple pillar 3a accounts or custody accounts. This provides tax advantages when making a withdrawal.
Those who want to invest at low cost and still want full flexibility over their deposits are probably better off with a bank solution. For individuals who are looking for greater security, especially protection for surviving dependants in the event of death, an insurance solution may be appropriate. Either way, it is important to look at the individual situation closely and weigh up the pros and cons of the solutions.
It is often advisable to separate the savings and insurance components. This means that on the one hand it is advisable to make regular contributions to your pillar 3a (savings account or securities savings) and, if necessary, to separately take out risk insurance to cover the risks of death and/or disability as a result of an accident and/or illness. This means that the risk insurance policy can be terminated prematurely in a way which is both flexible and cost-effective if there is no longer any need for insurance.
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