It’s important to start private retirement planning early – we explain why in the article “Retirement planning: your first steps to becoming an investor”. This article provides a practical overview of the three-pillar principle and its components. Most people will be familiar with private retirement planning via the 3a pillar. This is a fixed plan which means you cannot freely access the money paid in at any time. However, it does not mean that the pillar 3a can only consist of an account – there are various options available for pillar 3a retirement planning: you can either use a retirement savings account or you can invest in a retirement fund. The differences between the conventional retirement savings account 3a and retirement funds are explained here:
How to get more from your retirement planning
Most people will be familiar with the retirement savings account 3a. Do you also pay into your retirement savings account each year and receive interest in return? Are you aware that a retirement fund is also an alternative solution for the 3a pillar? We show you here how you can get more out of your private retirement planning with a retirement fund and explain the differences between a retirement savings account and a retirement fund in a practical comparison.
Minimum and maximum amount and inpayment
Retirement savings account 3aThere is no minimum inpayment or any obligation to open a retirement savings account. A certain maximum amount may be deducted from taxable income provided it has been paid into the account by the end of the tax year. The exact amounts for employees and self-employed persons are redefined each year. The currently applicable maximum amounts are set out here: https://www.ch.ch/de/dritte-saule
Retirement fundsYou can also purchase a retirement fund even if you already have a retirement savings account 3a. You decide for yourself how much money you wish to invest in your retirement fund. For example, you could just transfer some of the capital paid into the retirement savings account 3a to a fund – this option is available from as little as CHF 100. Alternatively, you can opt to have the capital paid into your retirement savings account 3a annually automatically invested in your retirement fund – the current maximum amounts also apply here.
Withdrawal of assets / investment horizon
Retirement savings account 3aOnce paid in, your retirement assets remain in your account until at least five years before your retirement. Advance withdrawal is only possible under certain conditions, for example, if you use the money to buy your own home, to leave Switzerland or to become self-employed. Another special case is full invalidity in the event of which assets can be withdrawn. The retirement savings account is generally a long-term investment – how long depends on when you start paying into it.
Retirement fundsYou can pay money from your retirement fund back into the retirement savings account 3a linked to it at any time. However, you cannot have the money invested transferred or paid out to any account. You can decide for yourself whether you wish to keep your investment in your retirement fund over the medium or long term.
Retirement savings account 3aIn terms of risk, there is little difference between your retirement savings account and a savings account: there is only a risk of loss in the event of the bankruptcy of your bank or pension foundation. If this should happen, various laws enter into force which protect your money to a certain degree.
Retirement fundsAs with all funds, there are various risk classes available with retirement funds – your fund will be exposed to varying degrees of fluctuation in value depending on the risk class. The level of risk you wish to assume is determined by your choice of fund based on your investor profile and investment horizon. If your bank enters into bankruptcy, funds are classified as segregated assets and are not included in your bank’s bankruptcy estate.
Performance of assets
Retirement savings account 3aYou receive a standard market rate of interest annually and benefit from the compound interest effect as you are leaving your retirement assets in your retirement savings account over a long period of time. However, the continued low-interest environment is having a negative impact on the compound interest effect.
Retirement fundsWith funds you generally benefit from higher returns on average than with a retirement savings account 3a. However, you have to accept price fluctuations depending on how much risk you wish to assume. This depends on the weighting of shares in the fund selected. As the investment horizon tends to be long-term with retirement assets, a higher risk can be assumed which may in turn be rewarded by higher returns. Over a longer period of time, a retirement fund has the chance to recover in the event of downturns in the market.
Private retirement planning is important and a retirement savings account is the first step in the right direction. However, it is also well worth considering setting up a retirement fund. You decide for yourself on the level of risk you wish to assume. The range of retirement funds provides an ideal solution for all investors. Your advisor would be pleased to help.