Hello hello,
You’ve heard about the 3rd pillar but you don’t really know its advantages or which one to choose?
Then you’ve come to the right place!
3-2-1, let’s go!
What’s a 3rd pillar for?
To explain this, I’m going to remind you about the Swiss pension system, which operates on 3 pillars.
The 1st pillar – also known as the AVS pension – is compulsory in Switzerland. It corresponds to the AVS contributions you paid from the age of 20, which you continue to pay until you reach legal retirement age. It guarantees a minimum standard of living for everyone. The minimum pension for a single person is currently CHF 1,225 per month, and the maximum CHF 2,450.
The 2nd pillar – also known as BVG pension – is the money you contribute via your pension fund when you work in Switzerland. These contributions are automatically deducted from your salary if you are an employee. The BVG is compulsory for employees subject to AHV with a gross annual income of at least CHF 22,050 in 2023. The LPP is designed to guarantee a “normal” standard of living once you reach legal retirement age.
The 3rd pillar is a private, optional Swiss retirement solution. With part-time work on the increase, sabbatical years taken, etc., the 1st and 2nd pillars are not enough to provide you with a full pension. Let’s face it: on average, the 1st and 2nd pillars cover at best 60% of the last salary received, provided there has never been a break in employment. That’s why the Swiss pension system includes a private, optional 3rd pillar, which can be used to bridge any pension gaps.
The benefits of the 3rd pillar a
As you may have understood, the 3rd pillar compensates for the shortcomings of the first 2 pillars in Switzerland. But that’s not all!
It also helps you save on taxes, as you can deduct your contributions from your taxable income. Please note that there is a maximum Pillar 3a limit that you can deduct from your taxes, which is set and announced annually by the Federal Council at the end of each year. For 2023, it allows contributions of up to CHF 7,056 per year for employees and up to 20% of net income with a maximum of CHF 35,280 for self-employed people.
Tax savings vary from person to person, but on average you can save between CHF 1,000 and CHF 2,500 in taxes. Unfortunately, I can’t give you a precise figure, as many factors will influence your tax savings, such as your income, other deductions, marital status, commune and canton of residence.
But every saving is worth taking! And savings mean more money to invest!
Finally, Pillar 3a can prove invaluable if you want to start your own business or buy property.
As you may have noticed, I’ve mainly been talking about pillar 3a, but there’s also a pillar 3b. So, to make sure you understand everything, here’s a quick debrief 😉
The 3rd pillar B is also known as the 3rd free pillar. It offers greater freedom in terms of payments and withdrawals, but is only tax-deductible in certain cantons, namely Fribourg and Geneva. A deduction of CHF 1,500 for Fribourg and up to CHF 6,652 for Geneva is accepted for a married couple. Depending on the marginal tax rate, Pillar 3b allows tax savings of around one-third of the amount contributed.
Which 3a pillars to choose?
As your assets in the first 2 pillars tend to be invested in bonds, and the 3rd pillar is in my view the first investment you should make in your life (yes, before investing in the stock market and crypto), it seems important to me to be able to invest in equities via your 3rd pillar a. This will give you higher returns when you retire.
Because yes, you can invest your 3rd pillar money in the stock market, isn’t that great?
If you’re young (okay, youth is a lifetime, but by that I mean you’re ~30 years from retirement), and your profile isn’t risk-averse, you can go all-in and invest 100% of your 3rd pillar in equities and other riskier assets (but which can give you a much higher return^^). Personally, this is the strategy I’ve chosen.
To choose your 3rd pillar a, you’ll need to take 2 criteria into account:
- the possibility of investing your entire 3rd pillar in equities and other risky assets
- The lowest fees! Because lower management fees mean lower returns!
My 3 pillars 3a for 2023!
If an insurer from a company called “SwissL…” contacts you, GET OUT!
You’ll pay astronomical fees, and a very low return!
A pillar 3a with a traditional bank is also a big NO for me. Too many fees, promised returns not met, in short, I’d steer clear.
To satisfy my 2 criteria explained above, I’ve found 3 fintechs that are really worth reading on!
Frankly :
- Up to 95% can be invested in equities
- 0.44% all-in fee
- Mobile and web applications
- You can create customized portfolios with great freedom
- SUPER-EASY TO USE!
Take advantage of a CHF 35 reduction on your fees by using my code MONEYMADAM when you open your account.
VIAC :
- Up to 99% can be invested in equities
- Extremely low fees, you can invest up to CHF 8,500 free of charge (depending on your recommendations)! Then 0.00% – 0.44% total costs, including product fees.
- Mobile application and web application.
- You can create customized portfolios with great freedom.
Register my Code TepFq2u at the end of the registration process and VIAC will manage your first CHF 1,000 – for life!
Finpension :
- Up to 99% can be invested in equities.
- Extremely low fees: 0.39% p.a. for a dynamic portfolio.
- Mobile and web applications
- You can create customized portfolios with great freedom
I’ll do a review for each 3rd pillar soon, as I use them all!
Until then, I wish you wonderful investments and …
LONG LIVE YOUR FINANCIAL FREEDOM!!!
