Category: Blog Articles

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Is there a safe solution to be protected from poverty in old age? Dealing with this question can limit the joyful anticipation of retirement. But make retirement planning a positive experience! Find out about government programs and the other options available to secure your standard of living in retirement!

In order to be able to use the available instruments in a targeted manner, it is best to start by recording your personal situation. Then, once you have identified the funding gaps for your retirement, you will be in a position to use the government programs as well as other tools in a targeted and efficient manner.

This article gives tips on how to identify gaps in your retirement planning and provides information on the main instruments you can use to close them.

The most important facts in brief

• Swiss people are still considered to be very wealthy by international standards.
• In statistics on old-age poverty, Switzerland does not score particularly well.
• The 3-pillar principle offers excellent instruments to secure the accustomed standard of living in old age.
• Early financial planning is the basis of sound retirement planning.
• Digitization has produced innovative asset management offerings for broad sections of the population.

Old-age provision: Realistically calculating needs in old age

Retirement planning is more than just a way of saving. Rather, it is the elementary component of a long-term financial plan. There are many factors to consider in order to realistically calculate your needs for retirement.

Life expectancy

Life expectancy has a direct impact on retirement savings needs. The longer you live, the greater your need for financial support in old age. According to 2020 figures from the Swiss Federal Statistical Office, life expectancy in Switzerland is 81 years for men and 85.1 years for women. It is therefore important to draw up personal pension plans based on this.

Income

The higher the income and the more stable it is today, the greater the need for retirement planning. It is important to be aware of what income you will need in old age and how much money you will need to ensure this in the long term.

Expenses

The cost of housing, insurance and other expenses can go up or down as you age – so you need to plan your retirement needs accordingly. It’s important to figure out what expenses will be incurred in retirement and whether they can be covered by existing income or if you need to save additional money.

Budget

It is recommended that you create your household budget for retirement to determine what portion of the income will be covered by the OASI and pension fund institutions.

Often, about 20 percent of expenses are expendable because direct expenses related to a job and travel expenses are eliminated. In addition, monthly installments for a mortgage on a condominium or house may decrease or be eliminated. Saving for private retirement savings also ends.

Often, there is no longer a need to spend money to support children of training or college age because they are now self-supporting. At the same time, however, new expenses may arise because you have more free time or want to travel or need to pay for medical treatment. Experts believe that you need less money in retirement than during your working life – so the 80 percent rule is often used.

For budgeting purposes, you should consider the following expenses in summary:

• Housing situation: If you live in an owner-occupied property, the management costs must be planned for. In addition, there must be an investment reserve for repairs or modernization. If you live in rented accommodation, you must assume future rent increases in addition to the current rent.
• Living expenses: These include expenses for food, clothing, replacement and purchase of electrical appliances and communication technology.
• Mobility: costs of purchasing and maintaining a car, as well as expenses for public transportation.
• Travel: Many look forward to the time after retirement to travel more frequently. To do so, financial resources must be saved in time.
• Loan obligations: Will all loans be paid off by retirement or do remaining installments need to be budgeted for?
• Taxes: When preparing the budget, the income tax item should not be missing.
• Health: How comprehensive is your health insurance? Experience shows that expenses increase with age and not all costs are covered by health insurance.
• Inheritance: Do you have the desire to leave an inheritance to your children?

Reading tip: Financial Advice for Women

Old-age poverty in Switzerland: Informing and avoiding it

According to surveys, around one third of the working population in Switzerland would like to retire professionally before the regular retirement age.

The third pillar in the pension system is an essential factor for a carefree life after retirement, but many apparently underestimate it. According to scientific studies, only about 60 percent of the Swiss take care of the third pillar of retirement provision. Yet it should be clear to everyone: Those who retire earlier also receive lower pensions.

Reality of old-age poverty

It is undeniable that Switzerland is a wealthy country where many people have sufficient financial resources. According to Credit Suisse’s “Global Wealth Report,” Switzerland even ranks ahead of the United States as the wealthiest country internationally. The wealth of the Swiss has continued to grow in recent decades, albeit at a slower pace.

But despite the overall wealth available, many pensioners in this country suffer from old-age poverty. Data from the Federal Social Insurance Office (FSIO) show that in 2019, around 200,000 pensioners received supplementary benefits (EL) to the AHV to cover their subsistence needs – in other words, they were affected by poverty.

Solid retirement planning begins with an analysis of your personal situation

Before you take a close look at retirement planning instruments, it is important to take stock of your situation.

The following questions serve this purpose:

• What assets do I already have today in addition to the entitlements from state and occupational pensions? These include, in particular, a home that has been fully or partially paid off, endowment life insurance policies, securities deposits and other asset components that have already been planned for the time after retirement.
• What payment streams (such as pensions or investment income) can I generate with the existing assets?
• How much capital is needed for my further life planning in old age (planned investments for yourself or, if applicable, for your children)?
• Can I expect an inheritance?
• How much time do I have until my planned retirement to accumulate the necessary assets?

Identifying gaps in your retirement planning

To check for a gap in your retirement savings, first compile your projected annual pension. This is divided into the AHV pension (1st pillar) and the pension from your pension fund (2nd pillar). Information on your AHV pension can be obtained from the cantonal compensation office. The pension entitlements of your pension fund can be found on your pension certificate.

Common causes of coverage gaps are:

• Contribution gaps: Pension gaps often occur due to interruptions in employment, such as child breaks, further education or stays abroad.
• Part-time work: If you work part-time, there will be less money for your retirement pension because you pay less into the pension fund and have a lower average income. Your OASI pension will also be lower than if you worked full-time due to lower average earnings.
• High income: It may sound contradictory at first, but it is a fact that high incomes lead to pension gaps. The higher the gross income, the lower the coverage by the legally required benefits from the first and second pillar.
• Reduction in conversion rate: Your retirement pension entitlement is based on your pension fund balance and the conversion rate. Unfortunately, this rate is currently decreasing, so that the pension from the second pillar is lower than expected years ago.
• Early retirement: Employed persons who retire earlier pay in less. As a result, the pension is correspondingly lower.

Pension provision in Switzerland: the 3-pillar principle

The pension system in Switzerland consists of three supporting elements: the state, the occupational and the private pension.

The first pillar is dedicated to the existential needs in old age, in case of disability and after the death of the insured. The second pillar is designed to help you continue your accustomed standard of living. However, AHV and pension funds can only fulfill this expectation to a limited extent. The third pillar closes the gap between the benefit providers of the first and second pillar elements and your financially required needs.

The first pillar

The state provides a modest subsistence level with the benefits of the first pillar. This means the cost of living in old age, in the event of disability and for surviving dependents in the event of death. As of 2022, this means a maximum of CHF 2,390 for a single person and CHF 3,585 for married couples. The pension for surviving dependents is even lower. Here, a maximum of CHF 1,912 widow’s or widower’s pension is paid.

Old-age and survivors’ insurance (AHV)

The AHV helps to ensure a livelihood in retirement. Should the insured person die, his surviving family members usually receive a widow’s or widower’s pension or an orphan’s pension. The amount of the pension depends on the amount of contributions as well as the duration of contributions.

Disability insurance (IV)

The first priority of the disability insurance is to reintegrate people who have become disabled due to illness or accident. However, if they can no longer work or are only partially able to work, the disability insurance provides a pension to ensure their livelihood.

Important: A full pension requires that OASI contributions have been paid without interruption between the age of 20 and retirement age. This means that each year without contributions will result in a reduction of the pension.

The second pillar

The so-called occupational pension plan, together with the first pillar, should enable you to maintain your accustomed standard of living in old age or in the event of disability, as well as to provide a pension to your survivors in the event of your death. The amount of your pension is determined by the contributions you have paid in during your working life.

With the benefits of the second pillar, together with the AHV, you secure about 60 to 75 percent of your last income. However, this only applies up to an annual income of currently CHF 86,040 (as of 2022). If you earn more or are self-employed, additional coverage is required as part of the company pension plan.

The pension benefits of the second pillar will probably decrease for future generations. After all, life expectancy has increased and interest rates have fallen. In view of this, it is advisable to look into private pension options.

Important: A lower salary also directly means reduced benefits. In addition, you will only remain insured with most pension funds if your salary exceeds the minimum amount of CHF 21,510 (as of 2022). If you intend to retire early, you can compensate for the lower retirement benefits by making targeted purchases into the second pillar.

The third pillar

The first and second pillars help cover approximately 60 to 75 percent of your final income as part of your retirement plan. The difference can be closed with the third pillar, so that the accustomed standard of living can be maintained in old age, after retirement.

In addition, this pillar offers the advantage that the federal government and the cantons provide tax incentives for pension provision.

The third pillar allows you to build up additional capital for retirement. This is a voluntary, individual pension plan. Private pension provision is divided into pillar 3a (tied pension provision) and pillar 3b (free pension provision).

• Pillar 3a (tied pension provision) offers great tax advantages: Contributions can be deducted from taxable income up to the statutory annual maximum amount, which saves you considerable taxes. For 2022, this is CHF 6,883 with pension fund and CHF 34,416 without pension fund – up to a maximum of 20 percent of income. However, to be able to pay into pillar 3a, you must have earned income subject to AHV.
• Pillar 3b (free pension provision) includes assets that are not already tied up in the first, second and pillar 3a. Pillar 3b includes classic savings accounts and investing for various goals, such as a new car and, of course, for retirement. In addition to interest accounts, securities solutions are among the typical investment instruments.

Other retirement planning instruments

For the planning of your personal retirement provision, a basic understanding of the topics of financial investments and asset classes pays off.

The following is therefore a brief overview and classification of various forms of capital investment and thus also of retirement provision.

Real estates

Real estate for old-age provision is particularly suitable for people who already have solid assets and appreciate the security and stability of a real estate investment. The low interest rate level has led to a real run on the investment in stone and land in recent years.

Incidentally, the purchase of an owner-occupied home is one of the special cases in which Pillar 3a funds can be withdrawn in advance.

Important: With real estate, you tie up your capital for the long term. For this reason, they can only be considered as downstream components of retirement planning. You should therefore give priority to financing instruments that offer you secure liquidity.

After purchase, real estate provides you with cash returns in the form of rental income or profits from the sale of the property at a higher price than you originally paid. Furthermore, the tax advantages of real estate investments can optimize profits. Risks include, in particular, loss of rent and repair and maintenance costs.

Savings accounts

The advantage of interest-only accounts is, on the surface, security. For fear of price fluctuations, many people prefer to invest their money in savings accounts, call money accounts or time deposit accounts despite low interest rates. However, this almost always leads to a significant loss of purchasing power, especially in times of low interest rates. Even within the third pillar of the Swiss pension system, many assets are lying dormant in interest accounts.

Experience shows: Savings investments are unsuitable for long-term wealth accumulation. Experience shows that investments in the stock market are therefore more advisable in the long term. Nevertheless, savings accounts are part of any solid asset structure, both as a security component and as a reserve that can be used in the short term. In general, experts recommend a reserve in call money accounts of around three months’ income.

Life insurance

While life insurance policies used to be one of the classic instruments of old-age provision, the financial product has come under pressure as a result of the low-interest phase. This applies both to state-subsidized programs and to free pension plans. Cover for death and disability is still important, but for reasons of profitability this is now more advisable as separate cover – i.e. without a savings component. Some insurers therefore offer fund policies in addition to pure risk coverage. Here, the savings portion is invested in fund shares.

Shares

The Corona era, low interest rates and a lack of investment alternatives have brought the so-called neo-brokers numerous, mainly young, new customers. The increased interest in the stock market is basically gratifying. However, investing in individual stocks involves a high issuer risk. Trading also requires corresponding expertise and time. Those who are able and willing to make use of this can invest the part of their assets in individual stocks on which they are not dependent.

Funds and fund savings plans

With funds, you also take advantage of the return opportunity on the stock market or other financial markets. The main advantage is that the fund invests your money in a large number of different securities at once. This means that the capital invested is diversified and the risk of losses is significantly minimized.

To build up capital on a regular basis, for example as a retirement provision, fund savings plans with regular monthly contributions are a good option. You will also find these among the third pillar financial instruments on offer.

Important: When investing in equities, you should take into account the time still available until retirement. This means that investments in the stock market require a time horizon of at least about ten years. Experience shows that temporary price drops are compensated for within this time. It therefore makes sense to start with a high share of equities of up to 100 percent when you are young and to reduce this share in the last few years before retirement.

Precious metals (gold, silver)

The price of gold reached a new high of US$2,000 per troy ounce in the Corona period in August 2020. After that, however, it went downhill again and the price did not rise again until the war in Ukraine.

Precious metals are in particularly high demand in times of crisis, which drives the price up. However, it cannot be deduced from this that they are particularly suitable for retirement provision. After all, the price fluctuations of the last few years prove that – in both directions.

Other (cryptocurrencies, crowdinvesting)

Cryptocurrencies and investments in crowdinvesting should be representative of highly speculative capital investment at this point.

Crowdinvesting is about providing capital as a subordinated creditor. This means that in case of insolvency of the project, all other creditors are served first.

Cryptocurrencies do not enjoy deposit protection and the value is enormously dependent on the current interest. There are further risks of loss due to the possible closure of exchanges or if countries prohibit trading.

In the context of a long-term asset accumulation, the described speculative investments do not play a major role because of the described risks.

How to make private retirement provisions

Despite the considerable wealth of the Swiss in international comparison, things do not look so positive for many pensioners in old age. Although there are decent earned incomes in Switzerland, many retirees are affected by old-age poverty. So make use of the instruments of state-subsidized old-age provision. With knowledge of financial investments also outside of state programs, you can optimize your personal pension provision. So that you can look forward to your time in retirement and maintain your accustomed standard of living, you should inform yourself in good time and actively begin financial planning.

Progressive digitalization now makes it possible to offer outstanding innovative investment advice and asset management services. Until a few years ago, these were reserved exclusively for significantly larger fortunes.

Important points to consider with regard to your retirement planning:

• Start immediately: Medical progress has ensured that we are allowed to grow older and older. However, this also means that retirement savings must last longer. If you start early, you can achieve a lot with manageable amounts and take advantage of tax benefits during your prime earning years.
• Take full advantage of government programs: Extensive here means taking advantage of the maximum amounts. In this way, the returns on the financial instruments are optimized through tax advantages.
• Plan the time of retirement: The desire for early retirement is increasing among Swiss people as their level of education and income rise. If you, too, want to determine your own retirement date, take into account possible pension gaps for high incomes and the deductions on an early pension.
• Budget planning including leisure activities: You rightly want to look forward to the time after retirement. This includes the certainty that even in old age you will have the financial means for the activities you want to pursue then. So think about capital for travel, hobbies and other wishes.
• Take advantage of innovative offers with cost benefits: Seek advice from independent wealth advisors in good time. Today’s digital wealth advisory services allow you to create your personal risk profile and receive matching strategy recommendations with just a few clicks.

Reading Time: 8 minutes

For many investors, it is not only the return that counts, but also the costs associated with an investment solution. Fees are often incurred at different levels depending on the service and are not always explicitly disclosed. This circumstance makes it difficult for customers to aggregate the total costs into a single figure, which is why the comparability of costs between different providers is not trivial. Here, it is important to distinguish which type of service one is relying on, due to different cost structures of pure trading platforms and asset management mandates.

In this blog post, we will go into what fees can be incurred specifically in the latter case in order to create transparency and awareness.

Fees at a glance

Fees can be incurred on three levels:

1. On the one hand, there are all fees incurred by the service itself, e.g. management fees for an asset management mandate.
2. Next, there are fees associated with a specific portfolio and its management. A classic example of this is custody fees or transaction costs.
3. Finally, a concrete investment instrument may also cost, such as an investment fund with an issue surcharge or management fees.

This can also be seen in the following table:

	Costs	Range from	Range to	Calculation basis
1st level	Management fees	0.00%	1.50%	p.a. of assets under management
Service	Profit sharing	5.00%	20.00%	of the generated return
	Entry fees	0.00%	5.00%	of the amount to be invested
2nd level	custody	0.10%	0.50%	p.a. of the assets under custody
Portfolio	administration fee	0.00%	0.20%	p.a. of the portfolio assets
	Foreign currency surcharge	0.05%	0.15%	on securities in foreign currency
	Account management fee	0.00 CHF	100.00 CHF	p.a. per account
	Position fee	10.00 CHF	40.00 CHF	per position in the account
	Brokerage	0.20%	2.00%	of the trading volume
	Spreads on foreign currencies	0.01%	2.50%	per currency exchange
3rd level	spreads on securities	0.05%	3.00%	of the trading volume
Instrument	front-end load	0.00%	5.00%	of the purchase amount
	Sales commission	0.00%	3.00%	of the purchase amount
	Product management fee	0.10%	2.50%	of the invested capital

Service fees

These are fees associated with the provision of the asset management service itself. These fees may depend on the asset class, so the fees may increase with the equity portion.

Management fee for asset management

The management fee is charged for each asset management mandate and is usually measured by the percentage of assets under management per year. It is often communicated very explicitly and can include different components.

This fee compensates the asset manager for his work of monitoring, managing the portfolio and analyzing and selecting individual investment instruments. This is the most costly part and so the management fee makes up the largest portion of the total cost.

• The more individual the client’s wishes are, the more effort is involved in asset management, which can increase the management fee.
• Often this can be compensated by a larger investment, as many managers offer a sliding scale of the fee, which decreases with increasing assets. If this fee is exceptionally low, it is likely that providers will compensate with other methods.
• The most favorable offers of robo-advisors start at 0.55% per year, since the degree of standardization is very high clients have no personal contact. With traditional private banks, the management fee can be up to 1.5% per year. However, a personal advisor and discretionary mandates can be accessed.

Performance fee for asset management

This fee is charged as a percentage on the return achieved by the asset manager and is uncommon in traditional asset management mandates. In hedge funds, this fee is widespread and is usually only charged above a certain minimum return, the so-called hurdle rate.

The idea of this fee is to align the incentives of the manager with those of the client. However, since the management fee already increases in proportion to the assets under management, this should already be incentive enough from a financial point of view to increase the client’s assets.

Entry fees in asset management

It can happen, although rather rarely, that an entry fee is charged. This is charged once as a percentage on the amount to be invested. These fees are associated with the initial expense incurred in setting up a mandate.

While this is uncommon in asset management, this fee is more commonly applied in the area of financial advisory and brokerage services, often called a “finders fee.”

Portfolio fees

The portfolio fee group includes all fees associated with managing a particular investment portfolio. Some of these fees cannot be influenced by the asset manager itself, especially if it is an independent asset manager. The custodian bank, which holds the securities in safe custody and carries out the transactions, determines the amount of these fees.

Custody account management fee

The custody fee is a charge for the safekeeping and administration of securities. These are held at the custodian bank, which in turn charges a fee as a percentage of the custody account value, but which is usually capped at a certain value.

• The amount of the fee often depends on the extent to which the bank charges for additional services. In addition, custody fees are often linked to transaction costs or a certain trading activity.
• For example, low custody fees are often compensated with higher transaction costs or a minimum number of transactions must be executed per quarter in order not to be charged (“inactivity fee”).
• However, higher fixed custody fees often occur in combination with lower transaction costs. Which cost model is more advantageous thus strongly depends on the quantity and frequency of transactions

Administration fee

In addition to custody fees, custodian banks may charge fees for special administration of the portfolio. This includes, for example, posting coupons and dividends or posting corporate actions.

However, some banks charge each item individually without charging a flat administration fee. In general, however, this fee is rather uncommon nowadays, as the costs are often already included in the portfolio management fee.

Foreign currency fees

We now come to what is probably one of the most underestimated and at the same time most non-transparent fees: foreign currency fees. This fee is incurred when securities are traded or held in foreign currencies.

• On the one hand, the bank charges for the safekeeping of securities abroad and, on the other hand, for the purchase or sale of these securities. While the fee for safekeeping abroad is rather rare, a fee on foreign currency transactions is common.
• This is a so-called “spread“. The spread is the difference between the bid (buying) and ask (selling) prices, also known as bid and ask. In very simplified terms, these are the prices at which a trader is willing to buy or sell an asset.
• The trader (or “market maker”) earns by having the bid price lower than the ask price. This means that he buys at a lower price than he sells. In the case of a foreign currency transaction, the bank in our example takes a fee by giving the customer a worse exchange rate than the current market rate for the foreign currency transaction. For example, a customer now pays a higher price for the U.S. dollars he needs to buy a U.S. stock than the current market price. This also works in reverse when a foreign currency security is sold.

The overall effect of this fee depends, of course, on how often and how much is traded in foreign currencies. That is why it is difficult to show this fee from the beginning. The aforementioned lack of transparency comes from the fact that, on the one hand, different spreads are charged depending on the currency and, on the other hand, the exact amount of the fee can only be seen by the customer checking the settlement of the foreign currency transaction and comparing the applied exchange rate with the market rate valid at that time. If the settled exchange rate is not explicitly stated in the first place, the customer still has to calculate it himself. Many customers are often unaware of this implicit fee, as only a few providers clearly indicate it. Thus, an offer that appears to be favorable at first glance may not be so favorable in the end.

Transaction costs or brokerage fees

Transaction costs are one of the most frequently incurred costs, along with the custody account management fee. These are incurred on the transactions themselves and, depending on the provider, can be either a percentage of the traded volume or a fixed amount per transaction.

The custodian bank charges this fee as part of its own expense based on trading activity to cover its own costs. These are partly charged by the exchanges and brokers. The amount of these costs strongly depends on the exchange, the currency, the investment instrument and the traded volume. Therefore, it is important not to underestimate these costs, especially if a portfolio is managed more actively and transactions are carried out regularly.

Position fee

The position fee, as the name suggests, is charged by some banks per position and in addition to the custody fees. The amount of this fee often varies by asset class and may not apply at all to bank-owned products. This fee is uncommon in asset management mandates, but is more often applied in advisory mandates.

Instrument fees or product costs

The last and lowest level of fees is incurred on individual instruments and products within a portfolio. These costs depend heavily on the type of product and the underlying asset class. For example, ETFs are less expensive than mutual funds and equity products are often more expensive than other asset classes.

In general, costs are only incurred for products that have an issuer or provider that issues or manages them, such as ETFs, mutual funds, or structured products. These are not incurred for instruments such as equities or bonds, as these also do not have to be actively managed or constructed.

Security spreads

We have previously discussed what so-called “spreads” are in the case of exchange rate fees. These can also occur with securities themselves. Basically, this has to do with the liquidity of a security and therefore again depends largely on the instrument itself.

In simple terms, liquidity indicates how easily a security can be traded without affecting the current market price. Sufficient liquidity is ensured by so-called “market makers” who always buy or sell when a corresponding counterparty enters the market. This ensures that market participants can execute their desired transactions even in less liquid markets.

The market maker pays for this by buying a little cheaper and selling a little more expensive than the “fair” market price. These costs cannot be directly influenced by clients in asset management and are generally not easy to quantify. We have listed them here for the sake of completeness, but they tend not to be too relevant in practice.

Front-end load

The so-called front-end load is a fee that is charged when purchasing investment funds. It is calculated as a percentage on the amount to be invested and can be up to 5% for actively managed equity funds.

Due to the fact that the fee is incurred with each purchase, it is particularly important for regular deposits. Banks often waive the front-end load on their own products to make them more attractive to their customers.

Management fee for funds

The management fee is also an important cost item in connection with investment funds. This cost is charged for management by the fund manager. It can be compared to the management fee at the mandate level, as a client’s own investment fund is managed by the asset manager.

A distinction is made between actively and passively managed investment instruments: Active instruments actively try to outperform the market, while passive products track an index or the market. Due to the higher effort in the first case, the fee is also correspondingly higher. ETFs also have a management fee, although it is much lower than most mutual funds because they take a passive approach.

Sales commissions

The sales commission is a special type of fee that is usually only incurred in connection with structured products. Issuers of these products get paid for the effort involved in constructing and managing them. The fee is a percentage of the amount to be invested and is charged directly against the cost price.

Structured products are a special type of instrument and belong to the asset class of “alternative investments”, which is why only a small part, if any, of the portfolio is invested in them.

Reading Time: 9 minutes

Children are our future and parents therefore want their offspring to have a solid financial foundation in addition to health and happiness. This includes medium-term savings goals, such as the money needed for a good education. It is also important that children learn to manage their private finances intelligently at an early age.

If you set the course early on, you can lay the foundations for prosperity and security even with a manageable income and long-term investments. To this end, you should be familiar with suitable investment forms when investing money for children. It is also best to clarify questions about inheritance and the timely transfer of assets at an early stage.

This article provides you with an initial overview so that you can plan in a targeted manner.

The most important facts in brief

• Starting to save early increases the compound interest effect, minimizes risks and creates wealth even with small amounts.
• Upcoming higher expenses such as education and housing are more easily achieved through goal setting and suitable investment forms.
• Regular amounts make saving easier and lower the average cost of units in investment savings (cost average effect).
• Saving for children is the practical economics lesson for the next generation.
• Planning for the children’s inheritance should also be taken into account, not least for tax reasons.

Why building wealth for children is so important

Being a parent means feeling responsible – whether the children are young or grown up. This is expressed primarily through parental love. However, young people need quite a bit of money during their lives, in addition to the direct costs of clothing and food.

This is needed, for example, for:

• major purchases such as computers or bicycles
• school and graduation trips
• Driver’s license and first car
• a stay abroad
• your own apartment
• costs during and for studies

When the costs add up, things get tight despite a part-time job or training salary. And young people are unlikely to be able to build up adequate reserves from their pocket money. So it’s a real blessing if parents, grandparents or godparents have made provisions for their children early on, giving them a head start.

Investing money in children’s accounts: practical business lessons for minors

Children today are learning more and more about how the economy works. This is a good thing, too, because the earlier they understand the basics of money and investing, the better they’ll be able to handle it later. A good start to gaining this knowledge is to invest money in a children’s or youth savings account. In this way, you take responsibility for dealing with fixed budgets and making the necessary provisions for the future at an early age.

It is not only the children who benefit from investing their first funds, but also the parents themselves. After all, if children learn how to handle money and invest it properly at an early age, this will be an enormous help to them later on. And in this way, parents can protect their own savings and have less to worry about their children spending amounts imprudently later and the money not being enough in the end.

Build assets for children: The longer the period, the easier it is to save up

Parents can give their offspring gifts that they will only appreciate many years later. Small monthly sums, invested over one or more decades, can build up into a sizable fortune. Time and an appropriate return provide the additional compound interest effect.

The important thing here is that the return achieved on a longer-term investment is always also higher than inflation.

Laying the foundations early: How can children learn to handle money?

Even at an early age, children can learn that you have to pay money for certain things. They see their parents spending money when they go shopping, so they understand that you have to pay money for the things you want. Even though they don’t yet understand how the system of money and prices works. They already recognize the need to be frugal and not spend everything you own.

Dealing with money is one of the essential parts of our daily lives. It is therefore important that children learn it at an early age. The time required for this is determined in particular by the increasing age of the children. The following is therefore a presentation of some points in ascending order according to age.

Dealing with pocket money

When managing their own pocket money, children learn, for example, when they should buy something and when they should rather save up for something.

Saving for goals

Saving for things they want – whether it’s a new toy or a particularly cool pair of shoes – is a way for kids to understand what it means to have and manage money.

Earning your own money

Another important step is to show children how to earn their own money. For example, they see that their parents go to work every day and get paid for it. In this way, they realize that you are paid for your work and that you have to be active yourself in order to earn money.

You can foster a practical relationship with your own “work” in your children by paying them for small services. These might include mowing the lawn or helping grandparents with their errands.

In keeping with the status of the parents, it is equally important to teach the children the basic differences between employees and the self-employed when it comes to dealing with money.

Their own account and the function of the bank

Teaching basic skills in handling different types of money is also important. For example, as children get older, they can learn to open and manage their own accounts at the bank. Parents can help with this by explaining to children what costs are involved (such as account management fees) and how best to manage their account.

Building on this, children can later be shown that there are different forms of investment. The relationship between risk and return should also be explained in good time.

Overall, it is important that children learn the importance of money and how to handle it at an early age. In this way, they can later successfully gain a foothold in their professional lives and build a financially stable future.

And remember, it’s more beneficial to make mistakes with a limited budget as a child than to take financial risks later in life as a young adult and get the receipt.

Wealth accumulation for children and young people: sensible forms

The days of saving for long-term desires with a savings account are long gone. Today, it is important to take your child’s future plans into account when determining the savings goal and term. Whether you want to invest money for later purchases, expand his knowledge of money management, or combine both: You need to consider how often and how much you want to invest. In addition to the option of making regular smaller contributions, you can also pay larger sums once or choose a combination of both.

But no matter which form of investment you choose: You minimize the risk and increase the compound interest effect if you start as early as possible.

Call money account and time deposit

Call money accounts or time deposits offer secure investment opportunities for your offspring. However, you have to buy the security with a modest return. It can be an ideal form of investment to help young children make the transition from “piggy bank” to bank.

However, call money and time deposits are not suitable for building up long-term assets. However, these forms of investment are suitable if you want to save up amounts for the short or medium term or safely store gifts of money for later use. With the overnight deposit account, the focus is on flexibility. For example, you can deposit gifts of money today and use it to buy an e-bike next season.

Fixed-term deposits are a form of investment in which you invest a certain amount for a contractually fixed term. You no longer have any flexibility, but the interest rates are slightly higher than for overnight deposits. This type of investment makes sense if you already know what you are saving for in the near future. This can be, for example, a stay abroad or the driver’s license, which is coming soon.

The first account for your own money

Many banks offer parents the opportunity to open their own account for their children. This is often free of charge up to a certain age and comes with other benefits. This children’s account can be used to store regular pocket money or one-off amounts such as birthday or Christmas presents. In this way, children learn in a protected environment to independently dispose of a certain amount of money and to save it for the fulfillment of their own wishes.

Making the most of the time as they grow up: Fund savings plans

Invest in shares at an early age and thus create the basis for a secure and profitable investment. With a securities account at a bank and a fund or ETF savings plan, one-off amounts can be made in addition to regular amounts. In this way, money gifts are also invested profitably in addition to regular savings installments. The investment is made in funds or ETFs. Banks often offer specially designed children’s custody accounts with favorable conditions.

Despite fluctuations on the market, a respectable return is possible with securities if one assumes long-term asset accumulation. This not only allows you to save for your offspring. It also enables other family members to participate in investing. With fund savings, you benefit from the cost average effect. This means that since the same amount is always invested, fewer shares are bought when prices are high and more when prices are low.

Keep in mind that this is a riskier investment compared to conservative savings vehicles. Experience has shown that broadly and globally invested index funds or ETFs offer optimum risk diversification. Important: You should always assume a long-term investment horizon of at least ten years.

Insurance savings – provision for specific events

Insurance companies also offer products designed for specific situations within families. Parents, for example, can arrange for their children to be paid out in the event of their death. Furthermore, some insurance products aim to pay out at a specific time, such as the start of an education (education insurance).

Early transfer protects children’s inheritance

According to a saying, it is better to give with warm hands than with cold ones, i.e. after death. This is a good idea, for example, if the young family lacks the equity required to purchase a home.

Unlike the so-called advance inheritance, a gift is generally not taken into account later on in the inheritance process. This means that, if desired, several children can be provided for in different ways. In many cases, inheritance to one’s own descendants is tax-free, but the tax-free amounts vary between the individual cantons. It may therefore be advisable to transfer part of the assets to the children during their lifetime.

Please note that this is a highly complex topic and no tax advice can be given at this point. Therefore, if necessary, contact a lawyer for inheritance law in good time.

Offspring learn how to build up assets: parents and children invest together

Well-informed, you can start saving for your kids with just a few steps:

• Involve children as soon as they open their first account: Children are most likely to learn when they take action themselves. That’s why it’s important for them to open their own accounts at a young age. This way, they not only see their money grow, but also get a feel for how the financial system works. Later on, for example, it will be easier for them to develop an understanding of the 3-pillar principle in Swiss pension provision. Of course, once they reach a certain age, they should always be involved in the investment decisions and see that it is their money that is at stake.
• Suitable investment form for the goal: Before things can get started, a goal must first be set. Should the money be saved for a driver’s license, the first car or for education? Once this question has been answered, the investment or risk mix can be defined. It is advisable to seek professional advice here.
• Ensure regularity: To automate the savings process and achieve the recommended regularity, it is advisable to set up a standing order. That way, you don’t have to remind yourself to transfer money every month.
• Use long periods for opportunities on the capital market: When investing money for children, a long period of time is available, depending on the savings goal. Experience has shown that investments in the stock market are a good choice here. Although the risk is higher compared to conservative forms of saving, in the past price drops have been compensated for over periods longer than ten years. The prerequisite for this is broad diversification, such as that offered by equity funds or ETFs. Here, savings plans can also be invested with small regular amounts of money.

Other articles worth reading:

• Background on the vested beneficts act for occupational pension
• Stock market crash – how should you react?
• Digital asset management: meaning & variants

Frequently asked questions (FAQ)

What is the importance of sustainability when saving for children?

When children grow up and receive gifts of money from you, they may wonder where it came from. It may not go down well if the capital they have saved has been increased by returns from coal-fired power plants or weapons corporations. So keep in mind that topics like climate protection and ESG are highly relevant to young people today.

How much money should I save each month for the kids?

Basically, of course, the amount of savings contributions depends on your personal possibilities. However, the following example is helpful in answering the question: If you save 100 francs a month, this will result in a capital of around 33,000 francs in 20 years with conservative savings methods (three percent interest). So roughly a good basis for financing a course of study. If invested in the stock market, the monthly savings contributions could already generate a capital of around 52,000 according to long-term experience (around seven percent return).

What about government support programs?

Saving for underage children is not directly subsidized by the state. Individual responsibility applies here. In Switzerland, parents are financially supported on the one hand by the family allowance and on the other hand by tax allowances for children. How you use this money is ultimately up to you.

Reading Time: 11 minutes

In their search for suitable provision for old age, informed consumers eventually come across investment in shares and other securities. After all, this is a proven instrument for building up assets over the long term. Within retirement planning in Switzerland, 3a funds offer an excellent opportunity to optimize the accumulation of retirement capital compared to interest-only accounts.

However, the selection of pension funds appears at first glance to be unmanageable. This article will give you an initial overview of how you can best invest with 3a funds, what the differences are between the funds and what you should bear in mind when making your selection.

The most important in brief

• Opportunities on the stock market can be exploited with 3a retirement funds.
• The return prospects are significantly higher than the interest rate market in the long term.
• Compared to insurance products, pension funds offer greater flexibility.
• When choosing a 3a fund, the personal asset situation and risk tolerance should be taken into account.
• Fees can have a significant impact on returns, which is why they should be compared comprehensively when choosing a fund.

Key advantages of 3a funds compared with other forms of investment

Developments in the interest rate market have raised new expectations among savers at the end of 2022. In addition, 3a retirement accounts have better interest rates compared to other interest accounts.

However, the current comparison (December 2022) of interest rates on 3a retirement accounts brings everyone who is serious about their retirement savings down to earth. According to this comparison, interest rates range between 0 and 0.60 percent. In plain language, this makes it difficult to build up significant retirement savings for the time after retirement.

Those who have invested in Swiss pension funds over the past ten years can look forward to a comparatively high return. During this time, the average return on 3a funds has been 23.4 percent – equivalent to a good 2.1 percent per year. The best funds were even better, yielding up to 54.5 percent over ten years, more than double the average.

With 3a funds, investors thus benefit from the following advantages with their payments as part of their retirement provision:

• Benefit from the yield opportunities on the stock markets even when making retirement provisions.
• Investments for different risk types possible
• Combination of different asset classes (diversification)
• Sustainable investments possible
• Wide range of actively and passively managed investment funds.

Compare 3a funds – here’s what you should look out for when comparing offers

Employed persons who are insured in a pension fund can pay in 6,883 francs as a maximum tax-privileged amount. On the other hand, those who are not insured in a fund (no BVG contribution) can even claim 34,416 francs or up to 20 percent of their income as a tax deduction. This means that investors receive a portion of the return from the state if they make provisions in pillar 3a. However, it is important to be very careful when choosing products, as this is a long-term investment.

Anyone who wants to save money in the third pillar by means of 3a funds compares the funds on offer. To ensure that the comparison is realistic and objective, you should pay attention to the following points:

• Comparison of returns of funds with the same share ratio: A comparison of returns only makes sense if the share ratio is the same. After all, higher return opportunities are always associated with higher risk.
• Compare the same time periods and points in time: By their very nature, stock markets are constantly on the move. Therefore, when comparing performance, it is important to use the same reference date (day, month, year) for the funds.
• Compare periods as long as possible: It makes sense to compare returns over as long a period as possible. Actively managed retirement funds may be able to achieve a higher return in the short term than passive funds. Whether this advantage exists over several years can only be assessed using longer periods, such as ten years.
• Past returns cannot be extrapolated: Each fund has a different risk-return profile, and market conditions can change at any time. So it is important to understand that it is impossible to predict past returns in terms of the future. It is more important to consider what type of investment best suits your own goals and needs. In particular, it’s about getting the best return with acceptable risks.
• Consider fees when comparing: The fund costs of the various securities funds in pillar 3a differ greatly. When comparing funds, it is therefore essential to compare fees as well as returns, as these can significantly reduce net performance. In recent years, so-called pillar 3a apps have been able to distinguish themselves with low fees. As digital asset managers, they also often invest in funds. They primarily rely on index funds and exchange-traded funds (ETFs) with lower fees. It’s no surprise, then, to see significant growth among digital providers.
• Compare funds with the same composition: First, learn about the different asset classes and find out which best suits your own investment strategy. Stocks tend to offer higher return potential than bonds or real estate, but they are also riskier. Bonds tend to offer higher safety than stocks, but lower returns. Real estate has lower volatility than stocks, but often requires a longer investment horizon for gains to materialize.
• Fund assets invested domestically or internationally: To compare the performance of funds, the investment focus must likewise be identical. Does the fund invest internationally or exclusively in Switzerland? Globally invested funds promise greater opportunities. However, appropriate research is also a prerequisite. Swiss companies can sometimes be evaluated more concretely.

The pension fund must fit the personal situation

Investing in a fund provides more diversification and allows investors to participate in the price increases of various stock markets and other financial markets. A fund invests its capital in various investment products and companies, which leads to a spread of investment risk.

When comparing the various 3a funds, many investors initially focus on performance. After all, everyone wants to achieve a maximum return. However, keep in mind that retirement products, especially investments in the stock market, are long-term investments. Therefore, it is important that the fund fits your personal situation.

Therefore, consider the following points when choosing your retirement fund:

Personal investment horizon

For people who have a time horizon of at least ten years, it is advisable to choose a larger proportion of shares. During this period, the chances are good that possible negative returns can be recovered. With an investment horizon of less than ten years, bonds and real estate provide a higher safety component.

Personal risk tolerance

Pension savers who want to take advantage of opportunities on the stock market will find what they are looking for in pillar 3a funds. They can choose between a very low or a high equity component. Which proportion is advisable depends on the risks investors are willing and able to take. You should therefore take your personal risk tolerance into account when deciding what amount to invest in equities.

In connection with individual risk tolerance, investment priorities can also play a role. Only opt for investments that you personally view positively. You can often consider certain segments, such as health or water, when selecting funds.

Relationship to total assets

When deciding on a fund, you should consider the total value of your assets. If someone has a property worth a million francs, they can more easily include a higher proportion of equities in their Pillar 3a investment than someone without such assets. Likewise, claims from pension funds or other liquid assets help to increase the risk portion in favor of opportunities for returns.

Personal inclination toward sustainability

Not all funds that are described as sustainable actually are. A truly sustainable fund that meets strict ESG criteria should have all of its assets invested accordingly. In some cases, however, investment portfolios are only partially selected according to sustainable criteria. When adapting a passive investment approach with ETFs, it can be difficult to invest all capital sustainably. Therefore, it is important to check with your provider about sustainability criteria and how portfolios are composed.

What does it mean to invest according to ESG criteria?

ESG investing implies that environmental (environmental), social (social) and corporate governance (governance) factors (ESG for short) are incorporated into investment decisions. ESG criteria encompass a broad range of issues that are not normally part of financial analysis, but may nevertheless have financial significance.

Specifically, the acronym means:

• Environmental: investments in renewable energy, environmentally friendly production, low emissions and efficient use of raw materials and energy.
• Social: high standards with regard to occupational safety, fair working conditions with appropriate remuneration, sustainability standards at suppliers
• Governance: internal controls to prevent corruption, sustainability management at board level and ensuring compliance with laws to avoid unnecessary risks

So if you consider criteria such as a sense of responsibility in responding to climate change, appropriate supply chain management strategies, fair treatment of employees, and a trusting corporate culture to be important, you should invest your money, and especially your retirement savings, according to ESG criteria. However, it is important to note that so far a clear definition of ESG criteria is still being found.

The selection of the provider

You will only be satisfied with your investment advisor in the long term if you can place the necessary trust in him. If an uneasy feeling remains, no good performance will be of any use. To do this, first check whether advice, personal or digital, is offered. Digital offerings now make investing easier. However, it is just as important to be able to reach a personal contact person in case of open questions or problems.

In addition to the comparison of fees, the answer to one question in particular is important for objective and individual advice: Is the provider actually independent and can draw on several offers on the market, or is it tied? So also consider a pillar 3a switch.

Influences the return: Fees for 3a funds

When it comes to 3a products, pension savers should pay attention not least to the lowest possible costs. According to the Moneyland comparison portal, passively managed funds cost an average of 0.76 percent in total fees in 2021, while actively managed funds averaged 1.17 percent.

Even if the above-mentioned comparison cannot be generalized, it is clear that higher fees do not automatically indicate the appropriate quality of a fund. This is because fees have a significant impact on the net return, especially over a long period of time.

Therefore, when comparing 3a pension funds, consider the following fees and orient yourself in particular to the ranges given:

Total Expense Ratio (TER)

These are the costs of fund management that are charged directly to the fund assets. You can find the item in the fund’s factsheet. The costs are also referred to as operating expense ratio, ongoing charges, all-inclusive costs, management fee or management fee.

Range: approximately 0.25 to 1.70 percent

Issue and redemption commission

The commission charged on the purchase or sale of fund shares can be as high as five percent. Should it be charged on purchase and sale, fees can thus be as high as ten percent.

Range: approximately 0.00 to 5 percent

Margins on the purchase and sale of foreign currencies

If you buy a fund in another currency, such as USD, your bank will first buy US dollars. This creates margins on foreign currencies, as with any exchange of currencies for a trip. When you sell, the margin on foreign currencies accrues again.

Dilution protection: issue and redemption spreads

This spread is designed to prevent the distribution of new fund units from causing disadvantages to existing fund holders. As soon as you invest money in a fund, the fund must use this inflow of capital to acquire new shares. As a result, a spread is again paid (difference between the selling price and the buying price). These spread costs are passed on to you with the so-called dilution protection.

Other transaction costs

In addition to the above-mentioned transaction costs, there may be other fees such as brokerage or exchange fees that banks charge for settlement. Some providers also charge these items as a lump sum or as a percentage of the transaction volume.

Every purchase or sale of securities in Switzerland is subject to the so-called federal stamp duty (turnover tax). This levy amounts to 0.075 percent for domestic securities and 0.15 percent for foreign securities per contracting party. Index funds that are not traded on the stock exchange are not subject to stamp duty.

Custody account and foundation fees

Custody account fees are sometimes charged for the management of the custody account. Some providers also charge an endowment fee, as only endowments can be sponsors of pension products.

Range: about 0.00 to 0.65 percent

Performance fee

The performance fee depends on the performance of the fund. It is widespread in hedge funds and alternative investments, but can also occur in equity or strategy funds.

Withholding taxes

Your pension assets are generally tax-free. However, taxes may be incurred if you invest in foreign securities. Dividends and interest are subject to a withholding tax that is levied in some countries. Here, funds that can reclaim withholding taxes are advantageous.

Funds vs. insurance: You should know these differences

3a insurance products are often so-called “mixed policies” that provide for old age while also covering risks, such as death.

When you choose a 3a policy, you pay a premium and commit to making long-term payments. If you want to cancel the policy or can no longer make the payments, things become unfavorable. You should therefore consider whether you can pay obligatory premiums over a longer period of time. The rigid design of such policies can have a negative impact if you become unemployed or retire early. Also, the fee structure is less transparent compared to 3a bank products.

Flexibility – Risk Tolerance – Return Opportunities

Whereas with insurance you pay a premium, with funds you invest your money in stocks and bonds. This means that funds have a higher risk than insurance, as they are exposed to the fluctuations of the stock market. On the other hand, investing in funds can potentially offer a higher level of return than investing in insurance. Therefore, it is critical for investors to consider their risk tolerance and weigh their goal (return or safety). If you are willing to take on a higher level of risk, a mutual fund savings plan may be of interest, as it is more flexible than insurance and has more potential for return. However, there are different degrees of risk here as well – so it’s not just about high or low, but different degrees of risk. Flexibility is another criterion for your choice of 3a retirement plan. Some funds are very flexible and let you make changes – so the type of savings plan also plays a role here. An insurance plan, on the other hand, usually doesn’t offer much flexibility for changes or payouts – here, the focus is on monthly payment methods and fixed sums.

Frequently asked questions (FAQ)

Why should I invest in a 3a fund instead of outside pillar 3a?

Since you can claim your contributions for tax purposes within the maximum amounts for pillar 3a, you already earn part of the return when you pay in.

What possible alternatives are there to the 3a retirement funds?

By saving in pillar 3a, you benefit from tax advantages. If you are looking for alternatives or have exhausted the maximum amounts, there are other free pension products available. Due to the favorable fees, index funds or ETFs are a good choice. Anyone who has invested in the most important Swiss index, the Swiss Market Index (SMI), over the past five years (as of December 10, 2022), for example, has enjoyed a performance of a good 17 percent, which is significantly higher than the leading German index, the DAX, for example, which returned a good 9 percent.

What is the difference between actively and passively managed funds?

Passively managed funds track a specific index. This can be the S&P 500 or another index. The advantage of passive management is that it is inexpensive.

Actively managed funds, on the other hand, are managed by fund managers who try to beat the market. They buy and sell stocks, bonds, precious metals or commodities to make profits. However, the cost of management and transactions is usually higher.

What is the maximum amount I can pay into a 3a retirement fund?

For 2023, the maximum amount is CHF 7,056 or 20 percent of income and a maximum of CHF 35,280 without a pension fund connection.

Reading Time: 7 minutes

For employees and self-employed persons, the 3rd pillar is the ideal supplement to the 1st and 2nd pillars within the Swiss pension system. The 3rd pillar consists of the tied pension plan, pillar 3a, and the untied pension plan, pillar 3b. By making voluntary contributions, you ensure that you close future income gaps and do not have to forego your accustomed standard of living in retirement.

The federal government promotes the voluntary old-age provision of the Swiss with tax benefits for the contributions paid in. In this article, you will learn how payments into a tied pension plan can be additionally profitable. You will also receive information about the maximum amounts that apply depending on your occupation and what you should pay attention to when making payments.

The most important facts in brief

• Conversion rates (factor for calculating retirement pensions) of pension funds have been reduced in recent years.
• Exploiting pillar options has become more important.
• Paying in pillar 3a: worthwhile pension provision due to tax advantages
• Maximum amounts vary (with or without pension fund).

Possible payments into pillar 3a in 2023

The maximum annual payments into Pillar 3a are relevant for tax deductibility. This means that Pillar 3a payments reduce your taxable income and you can therefore save taxes. However, the options for private pension provision through pillar 3a are reserved for people who have earned income subject to AHV contributions.

Two different maximum amounts apply to the possible payments into the pillar 3a pension products:

• small pillar 3a: gainfully employed persons who are affiliated with a pension fund.
• large pillar 3a: gainfully employed persons who are not affiliated with a pension fund.

For 2023, these amounts apply:

• 7,056 francs for the small pillar 3a and
• 35,280 francs for the large pillar 3a.

For 2022, these maximum amounts were valid:

for the small pillar 3a a maximum amount of 6,883 francs and
for the large pillar 3a a maximum amount of 34,416 francs.

How has the maximum Pillar 3a amount developed in the past?

Looking back at the maximum amounts, the first question that comes to mind is: On what basis is the maximum payment amount for tied pillar 3a pension provision determined in the first place? The maximum amount depends on the maximum AHV pension. Therefore, it usually changes every two years – just like the AHV pension.

• The formula for the conversion is also fixed: Maximum AHV annual pension × 3 × 8 percent.
• For the large pillar 3a, this amount is simply multiplied by five.

Here is an overview of the maximum pillar 3a amounts from the recent past:

Year	Employed persons with pension fund (BVG)	Employed persons without pension fund (maximum 20 percent of net earned income)
2023	7’056 CHF	35’280 CHF
2022 and 2021	6’883 CHF	34’416 CHF
2020 and 2019	6’826 CHF	34’128 CHF
2018, 2017, 2016, 2015	6’768 CHF	33’840 CHF
2014 and 2013	6’739 CHF	33’696 CHF
2012 and 2011	6’682 CHF	33’408 CHF
2010 and 2009	6’566 CHF	32’832 CHF

What deadlines must be observed?

One question that is asked time and again is the possibility of retroactive payments. The legislator has clearly regulated the facts in this case. It is not permitted to make retroactive deposits (additional payments) into the tied third pillar – neither to the full maximum amount nor in part. Deductible pillar 3a payments are always possible only for the current tax year. This begins on January 1 and ends on December 31 of the same year, for both employees and self-employed persons.

Deposits into the retirement savings account must be received by the end of the calendar year, i.e. by December 31, so that they can be deducted in the respective tax year. Deposits can be made at the bank counter until December 23 of the year.

Final deposits should be made by mid-December

It should be taken into account that pension institutions and product providers for pillar 3a (banks or insurance companies) are confronted with many deposits at the end of each year. They should therefore instruct the (last) payment for Pillar 3a before Christmas at the latest. This gives the pension provider enough time to book the money within the current tax period.

Payment rhythm depends on product

The way money is paid into a Pillar 3a pension product depends on the specific product. With some banks or insurance companies, the payment can be made once, while with others it is made at regular intervals. Investors have a choice here between retirement savings accounts, life insurance policies and other products in different variations.

Make the most of tax benefits with contributions to pillar 3a

The official tax forms contain the appropriate fields for entering the amounts of money paid into pillar 3a. Within the framework of the income tax calculation, the contributions then reduce the taxable income up to the applicable maximum amounts.

This means that the annual tax bill can be significantly reduced. By paying into pillar 3a, you therefore save taxes and provide for your retirement at the same time.

The amount of personal tax savings depends on the following factors:

• the taxable income
• the amount of the deposit
• the place of residence (canton of taxation)
• marital status
• the denomination

Example:

Leon lives in Bern, is single and has no children. He is a member of the Reformed Church and has a taxable income of CHF 80,000. For 2022, he pays into his pillar 3a account the maximum amount of 6,883 francs.

The tax savings that Leo achieves as a result of his payments for 2022 amount to a total of 2,059 francs.

By way of comparison, if Leo lived in Lucerne, he would achieve a total tax saving of 1,662 francs.

In the example, Leon therefore receives between 24 and 30 percent of his paid-in amounts back as tax savings, depending on where he lives.

Interest and capital income and tax treatment of assets during the term of the account

During the term of your retirement accounts, interest income is tax-free. This means that you do not have to pay withholding tax on annual interest credits. The same applies to income from securities solutions and from insurance policies. You therefore do not have to declare the income in your tax return either.

Likewise, no wealth tax is due for the capital built up during the term of the investment.

Paying amounts into pillar 3a: What you should consider

Below are a few more worthwhile tips from the field:

Tax deductibility only guaranteed with deposit certificate

When you open a tied pension account, you will receive a tax certificate from the corresponding institution for the contributions paid in. This is usually sent at the beginning of the year. In order to be able to deduct the paid-in amounts from your earned income, you must declare the certificate on your tax return. So: declare the paid-in amounts in your tax return and prove it with the tax certificate.

It is easy and fast to receive the tax certificate if you request it in digital form (as a PDF). You will then receive your tax return certificate in your e-banking mailbox.

Can I divide the maximum Pillar 3a amount among several retirement accounts?

It is possible to divide the maximum amount into several retirement accounts without any problems. However, the maximum payment amount applies to the total of the relationships and not to each individual one. This means, for example, that if a pension beneficiary pays into an interest account, a securities account and a life insurance policy at the same time, all payments count.

By law, there is no limit to the number of pension relationships a person can have. However, some banks and insurance companies set a limit of their own accord on how many 3a accounts customers can have with them (often a maximum of five). It is best to inquire directly with the respective provider. This limit then only applies to the institution in question. You can therefore open additional 3a accounts with other institutions.

Increase flexibility and optimize tax benefits with several pillar 3a accounts

It is generally recommended to open several accounts with the tax-privileged pillar 3a. This has only advantages and no disadvantages. If you have several pillar 3a accounts, you can draw on them in different years. By taking this step, most people save taxes in their canton.

With Pillar 3a, think about withdrawing the funds for retirement.

If you have only one account, the entire amount is taxed in one year. However, if you have several accounts, you can, for example, request the first withdrawal at 60, the second at 61 and the third at 62. This way, your tax payments will be lower.

The reason: although pillar 3a funds are taxed at a reduced rate and separately from other income at the time of withdrawal, the capital payment tax increases progressively with the amount. Therefore, it is advantageous to withdraw several small amounts staggered over several years.

Once the money is withdrawn, the 3a capital drawn is part of your regular assets and is therefore taxed as such. Important: A pillar 3a account can only ever be withdrawn in its entirety. It is impossible to withdraw a partial amount. This regulation is another reason not to have only one pillar 3a account.

Take advantage of tax benefits securely and automatically with a standing order

With a standing order, you ensure that your Pillar 3a payments are always made automatically. This has the advantage that you don’t forget to make any deposits and also take advantage of all the tax benefits that are possible for pillar 3a.

Don’t miss any deposit deadlines and secure your tax benefits. This works conveniently and completely automatically with a standing order for payments into your Pillar 3a retirement products. You then simply adjust this order when the maximum amount is increased.

Reading Time: 2 minutes

The year is already over? How can that be? We can’t believe it either. With work resting over the holidays and travel plans set, you probably have a lot on your to-do list. But the end of the year is also a great – dare we say satisfying? – time to review your finances and make plans for the year ahead.

So as you work through your pre-break checklist, be sure to add a few of these important money checks to the list. Even if you only get a few of them done, it could make the upcoming time off feel all the more enjoyable. Trust us.

Review your spending for Christmas & New Year’s Eve

Determine your financial limits for the holiday season. Will you be giving gifts this year? Are you planning a big celebration for the New Year?

If so, decide how much you want to spend. Pleasing your loved ones doesn’t always have to cost a lot of money. If you set some limits in advance, you’ll have a promise to fall back on when the holidays inevitably descend into chaos.

Review your spending for 2022

Every once in a while, it pays to take a look back at your financial planning. By getting a complete picture of your finances over the past year, you can start 2023 relaxed and have an up-to-date view of what’s happening.

• Did your expenses go up or down last year?
• How is your financial footing?
• How do you plan to optimize your budget for next year? (If you feel your finances have gone down a bit, that’s partly out of your control – inflation has lowered purchasing power recently.)

Bonus points if you find some unused expenses, unwanted subscriptions, etc. that you can cut down on!

Check your emergency savings account

This is just a maintenance check – if you’ve dipped into the account this year or fallen behind on contributions (due to the markets), a solid plan to replenish the account for 2023 can help you combat the uneasy feeling that you’ll start the year in the red.

Set goals for your investment portfolio

This year has not been a pretty one for investors – from one low to the next, our nerves have been severely tested after all. But there is a positive side to all of this: every stock market crash means a new opportunity to get in on the action.

And in order not to be tempted to wait for the absolute low point and thus miss the optimal time, it is best to invest regularly, such as monthly, for example. Consider for the new year how much money you can and want to invest monthly in the capital market.

So you automatically buy more when the market is low and less when it’s high – like a financial professional. Set the amount so that you can pay it in even when unforeseen costs arise, without maneuvering yourself into a liquidity squeeze. That way, you’ll build wealth for the long term, and short-term market fluctuations will leave you cold.

Reading Time: 6 minutes

Private pension provision (3rd pillar) serves to close the pension gap from the 1st and 2nd pillars. Pillar 3a is particularly interesting in this respect, as it allows additional tax savings to be made. The amount of the possible annual contribution is limited, but it can be completely deducted from taxes at the end of the year. In return for this tax incentive, the money can usually be withdrawn no earlier than five years before reaching the statutory retirement age.

Pillar 3a pension assets can either be saved in a pension account, paid into an insurance solution or invested in a securities account. The latter in particular offers greater flexibility and the opportunity to invest your assets over a long period of time to increase their value.

In this article, you will learn more about the investment solutions in pillar 3a, how the funds have been invested in the past and the advantages of investing directly.

The most important facts at a glance

• Investing 3a assets makes sense in most cases because the investment horizon is often very long.
• Over a long period of time, it can make a big difference whether you invest defensively or dynamically.
• Investing 3a assets via simple and digital solutions (apps) is becoming increasingly popular, which means that young people are also getting involved with the topic at an earlier age.
• The new option of investing in direct investments offers several advantages, such as greater transparency, lower costs and more precise control of portfolios.
• No matter which investment form or provider you choose, the main thing is to let your assets work and generate annual returns.

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Why it makes sense to invest pension assets

In the case of private pension provision with 3a, we are generally talking about a long-term investment horizon. Pillar 3a can be drawn down no earlier than five years before reaching the regular AHV retirement age.

An early withdrawal is strictly regulated by law and only possible under specific circumstances. As a result, the capital remains in the account for a long time and is therefore suitable for investment in securities. This is where the so-called compound interest effect comes into play, which is often underestimated. This describes the fact that invested capital increases exponentially, even with a constant return. This is due to the fact that generated returns on capital are reinvested and thus generate new capital, which in turn generates capital. Thus, it quickly becomes clear that the increase in value is highest at the end of an investment period.

Of course, this effect also occurs with a fixed interest rate on a savings account. However, a difference of 1-2% return per year over 20 to 30 years can make a significant difference in the final capital.

As an example:

• If you invest CHF 100,000 at 3% per year for 30 years, you will receive CHF 242,726.
• If you invest the same capital at 4% per year, you will already receive significantly more at 324,340 CHF – that is a difference of 81,614 CHF or 33.6% more capital.

You should therefore definitely consider whether it doesn’t make more sense to invest your pension assets more in equities, where the historical return over a long period of 30 years is much higher at around 7% per year than with bonds or a fixed-interest account. As mentioned at the outset, the time factor plays the decisive role here, and that is precisely what is usually abundant in the case of pension assets.

How pension assets were invested in the past

In the past, Pillar 3a assets were often placed in savings accounts, which in the past at least still had a respectable interest rate. However, with the onset of the low-interest environment in 2009 as a result of the financial crisis, there was effectively no longer any savings interest on account balances.

As a result, 3a assets were increasingly paid into pension funds of major banks or insurance solutions in order to at least compensate for inflation. With the advent of new, digital providers, low-cost investing in ETF and index fund portfolios became increasingly popular. Unlike insurance or mutual fund solutions, this allowed people to personalize their investments for the first time, albeit to a limited extent.

These solutions were easy to open, transparent and could be easily managed independently via the respective app. In the normal case, however, investors can only choose between a selection of a few ETFs and index funds. What was already normal in traditional asset management unfortunately did not exist in 3a retirement planning until much later: discretionary mandates with investment in direct investments.

Reading tip: Pillar 3a funds: tips & return opportunities

Advantages of direct investments

Discretionary mandates are investment portfolios consisting of direct investments in individual stocks, bonds, etc., which can be fully customized to each client’s preferences and preferences. These portfolios are managed individually and independently from other portfolios, which significantly increases the management effort.

For this reason, this concept is often reserved for high-net-worth clients in the private banking sector. Yet the advantages for the investor cannot be denied:

• By investing in direct securities, the portfolio can be specifically tailored to the client’s wishes and needs, as well as his risk appetite.
• By being able to see what is in his portfolio at any time, he also gains the maximum possible transparency. In this way, investment in undesirable companies can be avoided.
• In addition, not using collective investments such as funds and ETFs brings the advantage that no additional product costs are incurred. This, in turn, contributes to general transparency vis-à-vis the customer.

Since the customer is not allowed to manage his retirement savings account independently, this task must be left to an asset manager or a bank. From the asset manager’s point of view, the direct investment approach has the additional advantage that client portfolios can be managed much more precisely. This makes it possible to react even better to certain market conditions, which ultimately benefits the return on the client’s portfolio. Furthermore, specific investment strategies and styles can be implemented, where ETF and index fund portfolios often implement pure risk optimization from modern portfolio theory.

For more information on the direct investment approach, see our blog post on active investing and on asset management mandates.

Summary of pension provision with 3a

Pillar 3a is currently enjoying great popularity, and rightly so. Thanks to the introduction of simple and intuitive retirement planning apps, the younger generation in particular is looking at building up their retirement assets at an earlier stage. This is probably also due to the fact that nowadays you are more often confronted with the topics of retirement provision and retirement provision with 3a in advertisements and magazines. The recent changes to the AHV system in particular have meant that this topic is now also receiving the attention it deserves among more and more women.

In order to make the most of one’s pension assets over a long time horizon, regardless of the amount, it is essential to invest them. Using our example on compound interest, it became clear that the long-term outcome can change significantly depending on the decision of whether and how to invest the assets. With the current trend of rising interest rates, even simple interest savings accounts are becoming more attractive again. However, the past shows that it has always paid off to invest your capital as dynamically as possible over 20 to 30 years. Ultimately, it is a very personal decision how risky to invest, but also which provider suits you best.

The new direct investment offering is particularly interesting for those who want a portfolio that is as transparent and individual as possible, in which it is clear exactly which companies they are invested in. Others, on the other hand, are satisfied with a passive ETF portfolio that simply covers the broad investment market. However, the most important thing is to invest your capital in the first place and to use the long investment horizon for yourself in order to be in as comfortable a financial situation as possible in old age.

Reading Time: 9 minutes

The tax system in Switzerland is extremely complex. In addition to the federal tax, taxes are levied in the cantons and municipalities. Each of the 26 cantons has its own tax laws, which means regionally different taxation of assets, income and profits. But at the same time, Switzerland is known as an investor-friendly country. If, for example, you realize a profit with price gains on shares, this remains tax-free for private investors. Thus, investing in shares in Switzerland is also interesting from a tax point of view. The general tax burden in Switzerland is also low in international comparison.

However, only through clever planning can you operate an efficient pension plan and reduce your personal tax burden at the same time. Personal pension planning is therefore one of the most effective ways to save taxes. Read this article to find out what you should bear in mind.

• Capital income are subject to income tax – capital gains are tax-free.
• Declare assets correctly and recover withholding tax.
• Withholding tax abroad can reduce returns.
• Private investors must observe the threshold for professional trading.
• Pillar 3a offers additional opportunities to save taxes.

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Taxes on investments: which taxes may apply

Switzerland’s low tax rate by international standards gives investors hope. The fiscal quota is the most common way to measure the overall tax burden. It corresponds to fiscal revenues, including social security contributions, as a percentage of gross domestic product (GDP). According to figures from the Swiss Federal Statistical Office, Switzerland’s fiscal-to-GDP ratio is 28.5 percent in 2021. By comparison, in OECD countries with a comparable level of development, the ratios average a good 34 percent and range from about 17 to 46 percent.

The cantons in Switzerland have a high degree of tax autonomy. The federal government, on the other hand, may only levy taxes that are permitted by the federal constitution. The cantons, on the other hand, also decide on the levying of property taxes, gift taxes or inheritance taxes.

This makes the tax system complex and to save taxes in Switzerland, knowing some details is essential.

Capital Income and Capital Gains

Basically, the tax law distinguishes between capital income and capital gains.

• Capital income: Capital income includes income generated by capital. This includes interest as well as dividends from shares or funds. This income counts as taxable income.
• Capital gain: This arises from price gains generated by securities. These are tax-free for private investors as long as they are not generated commercially.

Withholding tax

In addition to income tax, Swiss investors also pay the so-called withholding tax of 35 percent. The withholding tax on investment income is a tax levied by the federal government. It is intended to ensure that income and capital gains are disclosed.

Investors can reclaim the withholding tax if they correctly declare their assets in their tax return. The taxpayer can declare the withholding tax on the official forms of the tax authorities, which will reimburse it.

Withholding tax of foreign securities

In the case of income from foreign securities, the withholding tax of the respective country of origin applies.

Below is a selection of countries and their withholding taxes:

• USA: 30 percent
• Germany: 26.375 percent
• Austria: 27.5 percent
• Great Britain: no withholding tax
• Australia: no withholding tax

The Swiss Federal Tax Administration provides information on withholding tax for all countries on its website. Income from foreign securities is generally subject to income tax regardless of the foreign withholding tax.

Double taxation treaty partially prevents double taxation

However, investors can partially avoid double taxation through double taxation agreements that Switzerland has concluded with numerous countries. In these cases, some withholding taxes can be credited against income tax in Switzerland when foreign dividends are paid out. In most cases, this involves about 15 percent. In some cases, the remaining amount can be reclaimed in the country of origin. However, due to the administrative effort involved, this is often only worthwhile for larger amounts.

Wealth tax

Wealth tax is an annual tax levied on the taxpayer’s total assets. Tax is levied on the basis of net assets, i.e. after deduction of liabilities and cantonal social deductions. Therefore, it is often advantageous to take out loans for the investment and thus save taxes. The tax rates in the cantons or municipalities of residence are between 1.3 and 11.5 per mille. There is a progressive taxation, whereby assets above one million francs are particularly affected.

Most cantons and municipalities grant different tax allowances. Marital status and children also have an effect. The differences are considerable. The tax-free minimum, depending on the canton, is between CHF 10,000 and CHF 200,000.

As a private investor, always keep an eye on: Threshold to professionalism

As a private investor in Switzerland, you should always keep an eye on the threshold for commercial activity. As soon as a private investor becomes a professional, different rules apply and he or she is subject to profit tax law. The exact rules for the threshold for professionalism are very complex in Switzerland and are interpreted differently from case to case. However, there are some general guidelines that private investors should be aware of.

According to a circular issued by the Swiss Federal Tax Administration, taxpayers who are found to meet the following criteria will be looked at more closely:

• Credit financing of investments ensures that taxable property income (for example, interest and dividends) is lower than the pro rata interest on loans.
• The value of purchases and sales made in the course of a calendar year exceeds the value of securities and cash balances held at the beginning of the tax period by a factor of five.
• Within a tax period, capital gains have been realized that account for more than 50 percent of all taxable income.
• Investments are closely related to a specific professional activity and are not available to all investors.
• Securities sold were held for less than six months. Day traders must therefore be prepared for a heightened scrutiny.
• The taxpayer trades in derivatives (especially options) that do not serve the sole purpose of hedging his securities positions.

Different investments – different taxes

The need for private pension provision was recognized early on in Switzerland. This is shown by the exception in the tax laws to exempt gains from investments for private investors from income tax.

In detail, there are some differences in the investment forms:

Taxes on interest accounts and shares

The federal government initially levies withholding tax on interest and dividends from shares. This means that the bank transfers 65 percent of the income to the account holder and 35 percent to the Federal Tax Administration.

With the withholding tax, the federal government avoids tax evasion. If you declare your bank account and securities income correctly in your tax return, you will receive the withholding tax back. To do this, you declare your investment income in the securities list of the tax return. The withholding tax is then refunded by your canton, which is usually done by offsetting it against your cantonal taxes. For personal taxation, the income is then added to the taxable income (dividends or interest before deduction of withholding tax).

With regard to wealth tax, securities are taxable at market value. In the case of credit balances, the nominal value corresponds to the market value. Life and annuity insurance policies are subject to wealth tax at the surrender value during the savings phase.

Accumulating funds

In the case of funds with no ongoing distribution to the investor, the income is generally reinvested in new units. The taxation is basically no different from that for distributing funds. For this purpose, the fund companies report the reinvested income to the tax administration as of the reporting date.

Cryptocurrencies

Cryptocurrencies are digital means of payment that depend on a protocol and the technology behind it. Owning cryptocurrency units such as Bitcoin is economically comparable to owning cash.

Provided cryptocurrencies are part of private assets, capital gains are tax-free, as from other investments. In the case of cryptocurrencies, the tax regulations on commercial trading must also be observed in this context. The prospecting (mining) of cryptocurrencies against remuneration based on the provision of computing power is considered as self-employment and leads to taxable income.

Credit balances in cryptocurrencies must be reported as “other credit balances” in the securities and credit balances register and are subject to wealth tax. The year-end exchange rate is decisive for the valuation.

Real estate assets

In addition to property tax amounting to approximately one to two per mille of the value of the property, those who live in their own home in Switzerland must pay tax in particular on the so-called imputed rental value. This value corresponds to about 60 to 70 percent of the usual rent. In return, however, all maintenance expenses and loan obligations are tax-deductible.

If you sell your house, apartment or land and make a profit, you must pay tax on this in all cantons. This profit can be high if you bought your home many years ago when prices were much lower.

How much of the profit you have to pay tax on depends in most cantons on how long you have owned the house: The longer, the lower the property gains tax. On the other hand, cantons levy a higher tax on real estate gains realized during a short period of ownership; this is done to curb speculation.

You can determine the amount of real estate gains tax online at many cantonal tax administrations.

Example:

You have sold your property in the municipality of Aarberg in the canton of Bern at a price of CHF 500,000. In addition to the purchase price of CHF 300,000, you had deductible maintenance costs of CHF 150,000. This results in a profit of 50,000 CHF. Assuming an ownership period of 5 years, this results in a property gains tax of 10’723.55 CHF. The profit tax would be reduced to CHF 6,169.95 with an assumed ownership period of 20 years.

Saving Taxes in Switzerland: These Options Every Private Investor Should Consider

Private pension provision is a major lever for saving taxes in Switzerland. Therefore, pay particular attention to the following points when making your investments:

• In the case of shares, aim for tax-free price gains: Investors looking for high-yield investment opportunities should consider what they focus on. Bonds regularly yield interest, but this interest is taxable and thus reduces the return. Stocks seem to be a worthwhile investment thanks to dividend payments, but dividends are also subject to income tax. Securities that forgo dividends may be a better option for investors. After all, stocks can lead to significant increases in value over the long term, and when they are sold, the entire gain remains tax-free.
• Avoid classification as a professional trader: Achieve this by investing for the long term with infrequent rebalancing. Also, avoid leverage when trading and use options exclusively for hedging. Also, make sure that your profits from stock trading do not account for more than half of your pure income.
• Take advantage of the opportunities for self-provision: This includes pillar 3a. Assets are tax-free until the time of the capital benefits. Only thereafter are they subject to annual tax. In the 2022 tax year, as an employee, you can deduct up to CHF 6,883 (a maximum of 20 percent of net income) from taxable income as payments into the tied pension plan of pillar 3a. As a self-employed person (without a pension fund), the amount is CHF 34,416. Read more about the 3a maximum amount here.
• Purchases into a pension fund are deductible: The possibilities depend on the personal coverage gap. You can find out the maximum payments in your annual pension fund statement. In order to make optimal use of the progression, it is advisable to spread the expenses over several years.
• Structured products with tax-free coupons: Structured products consist of a combination of different investments. Some providers offer constructions in which only a small interest income is generated. The greater part of the distribution is generated by the sale of options and thus remains tax-free.
• Withholding tax on investments abroad: As already explained in the paragraph “Withholding tax on foreign securities”, different withholding taxes apply in the individual countries worldwide. These can only be offset if there is a double taxation agreement with Switzerland. In all other cases, they reduce the return. You should bear this in mind when choosing a product, such as ETFs or funds.

Reading tip: These articles may also be of interest to you:

• The vested benefits principle for occupational pensions
• The 3-pillar principle in Switzerland

Save taxes even as a retiree and with real estate

Personal situations that may also be relevant from a tax point of view are, for example:

Retirement: The tax-saving potential depends crucially on whether you want to draw your pension as a lump sum or as an annuity. Because this is more favorable from a tax point of view, you should prefer a lump-sum withdrawal – especially if the money is invested at the same time. The reason: The pension fund annuity must be taxed in full. However, the payment of the capital is only taxed once, separately from the other income, and at a lower tax rate.

Home ownership: Current costs of your property can be deducted from your taxable income. These include interest on a loan and work to maintain the property. You can choose between a flat rate (between 10 and 20 percent of the imputed rental value, depending on the canton) and the actual costs. This also applies to vacation homes, where you can also deduct a flat rate for wear and tear of around 20 percent for the furnishings if you rent out the property.

Reading Time: 8 minutes

Digitization is advancing inexorably in all areas of life. For some years now, it has also been evident in the world of finance through cryptocurrencies. However, only a few people are really familiar with this topic. In addition, cryptos have very high price fluctuations and many people have lost money as a result.

Therefore, in the following article we will show you what exactly cryptocurrencies are. Furthermore, we will go into whether it makes sense to invest money in cryptocurrencies and what you should pay attention to.

The most important information in 30 seconds

• A cryptocurrency is completely digital money
• Each transaction is recorded in the so-called blockchain
• You need a wallet to trade cryptos
• Digital currencies offer great opportunities, but also have numerous risks
• A cryptocurrency forecast is difficult because the market is volatile and the price trend depends on many different factors

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How do Bitcoin and other cryptocurrencies actually work?

Cryptocurrencies are a very young financial instrument that few people understand yet. Any currency that exists exclusively digitally, i.e. as a number on a computer, and secures transactions using cryptography is called a cryptocurrency. The oldest and best known of the digital currencies is bitcoin. In our normal monetary system, banks are needed for transfers. They hold the accounts of the payee as well as the payer and process a transfer.

With a cryptocurrency, the bank is dispensed with as a central instance. Digital currencies are in fact transferred via peer-to-peer system. The remitter and the recipient only need a so-called “wallet” (digital purse) and they can take their cryptocurrencies to any place in the world. Transactions are recorded in a public register or cash book and verified by several computers.

How exactly does a transaction work?

If you want to buy or sell cryptocurrencies yourself or send them to other people, you need your own wallet. This is comparable to your bank account. However, instead of an account number, you get a wallet address. You can buy digital currencies on an exchange by depositing Swiss francs and exchanging them for cryptocurrencies. In the course of the purchase, you need to specify your wallet address as the recipient. If you want to send some of your cryptos to another person, you need the recipient’s wallet address.

What is the blockchain?

You can think of the blockchain as a public ledger. All transactions are stored in it and they are preserved forever. Each block has a certain size. When a block is full, a new block is attached to it, creating a chain, the blockchain.

Where and how can I pay with cryptocurrencies?

All you need to pay with cryptos is a QR code and your smartphone with your wallet. There are still relatively few people who use cryptos as money in everyday life, however, the development is progressing more and more here as well. In Switzerland alone, for example, over 85,000 merchants have been able to accept payments in Bitcoin and Ether for some time.

There are also some Bitcoin vending machines in Switzerland where you can buy Bitcoins and also sell them again for Swiss francs. The SBB ticket machines also have a Bitcoin function.

What cryptocurrencies are there?

The oldest and best-known cryptocurrency, Bitcoin, was developed by Satoshi Nakamoto in 2008. In the meantime, there are countless other cryptocurrencies. The following can be counted among the most important of the digital currencies:

• Bitcoin
• Ethereum
• Tether
• Ripple
• Cardano

New cryptocurrencies are developed or launched almost every day. Mostly, startups use the digital coins to raise capital for a new project. So, they develop a cryptocurrency and then sell it on the market. New cryptocurrencies are also created through mining. In the course of mining, computers solve complex computational tasks and receive bitcoins as a reward, for example.

There is also a distinction between the Bitcoin and Altcoins. Altcoins (= alternative coins) are all cryptocurrencies that were developed after Bitcoin. In addition, there are the so-called “tokens”. They are also digital currencies. However, tokens use an existing blockchain. For example, Tether is a token that uses the Ethereum blockchain.

What distinguishes cryptocurrencies from other currencies and stocks?

The key difference between cryptocurrencies and other currencies and stocks is that they are traded exclusively digitally. It is therefore not possible to hold a Bitcoin in your hand and pay with it in cash in a store. Furthermore, currencies can be multiplied at will. For example, the major central banks printed a lot of new money in the wake of the 2008 financial crisis and the 2020 Corona crisis. This is not possible with bitcoin, for example, because it is limited to 21 million units.

Normal currencies, also known as fiat money, continue to perform certain functions. These include:

• the medium of exchange function
• Function as a unit of account
• Function as a store of value

Many experts are undecided as to whether cryptocurrencies fulfill all three functions. For example, one criticism is that digital currencies are subject to too much volatility and therefore they cannot be a store of value.

In addition, cryptocurrencies are unbacked. So there is no value behind a digital currency and there is no gold peg, as was the case with normal fiat currencies for a long time. On the other hand, if you buy a stock, you become a shareholder in the company. Your stock will go up as the value of the company increases.

Advantages and disadvantages of cryptocurrencies

What are the advantages of cryptocurrencies?

1. There is an above-average chance of return.

Bitcoin and other cryptocurrencies primarily represent a new way to invest money. In recent years, investors have been able to earn high returns by investing wisely. Those who have invested their money in bitcoin since 2008 are now enjoying annual returns of around 230.00%.

2. Digital currencies offer you anonymity and independence

Cryptocurrencies are free from government control. There is no central authority that can block or access the account in case of seizure, for example. The wallet on which your cryptocurrencies are stored is exclusively accessible to you and therefore makes you independent of banks.

3. Bitcoin and altcoins can protect against inflation.

Cryptocurrencies are very volatile, so critics say that they do not offer good protection against inflation. However, while most fiat currencies around the world have lost significant value over the past 10 years, cryptocurrencies have allowed investors to preserve and even increase the value of their money.

4. Trading cryptocurrencies is possible around the clock.

Digital currencies can be traded 7 days a week, 24 hours a day. For this reason, they are very interesting especially for traders. For investors who are long-term oriented, there is a possibility to buy or sell even on weekends or holidays, which is very convenient.

What are the disadvantages of cryptocurrencies?

1. Cryptocurrencies are very volatile and risky.

On the one hand, Bitcoins and Altcoins offer enormous opportunities for returns. However, on the other hand, they are subject to a risk that should not be underestimated. Thus, price drops of 20% per day are not uncommon. In addition, many investors have suffered a total loss by buying the wrong cryptocurrency. This is because the entire market is unregulated.

2. It is a financial instrument that is still very young and little established

In recent years, the cryptocurrency ecosystem has grown a lot. More and more people are now interested in this market. The price trends of various digital currencies are impressive and numerous people have become millionaires. However, you must not forget that it is still a very young and little established market that has a very short history.

3. If you make a mistake, your money will be lost forever.

There is no advice from a bank before investing in cryptocurrencies and you also do not enjoy investor protection in case you become a victim of fraud. If you choose the wrong cryptocurrency or make a mistake when transferring money, your money will be lost forever.

4. You need to protect yourself from hackers and you are your own bank.

If you decide to trade cryptocurrencies, you will inevitably have to deal with the issue of “security”. After all, if you store larger amounts of Bitcoins and Altcoins on your computer, you can become the target of hackers. We therefore recommend that you use a hardware wallet to store your cryptos securely. Because there are also some dubious trading platforms.

Get rich and poor with cryptos

How to make money with cryptos:

1. Invest in mining hardware and become a miner.

You have the option to buy powerful computers and mine cryptos. However, for this you need the right hardware and a lot of experience. Besides, you should pay attention to the fact that the technology is always evolving and hardware that is sufficient today will not bring good returns in just a few months.

2. Actively trade cryptos

Most people make money by trading digital currencies. This means that they buy and sell cryptos. Your goal should be to buy different cryptos when the prices are low. They subsequently sell at a higher rate. In theory, this sounds easy. Unfortunately, you usually never know when the bottom of a bear market is reached. Also, it is only clear in retrospect when the bull market has reached its end.

• Therefore, we recommend that you buy regularly on a monthly basis. This way, you benefit from the cost-average effect and you don’t have to worry about when is the best time to buy.
• Through this approach, the Tesla company, for example, has made a good profit. Thus, the car manufacturer bought numerous Bitcoins and profited from the price increase at the end of 2021.
• However, small investors have also become millionaires with a clever investment strategy, as the example of Dadvan Yousuf shows. He became a crypto millionaire at the age of 17 and continues to be active in the crypto market.

This way you lose money and become poor through cryptos:

1. Not your keys, not your coins – loss control over your own cryptos.

Many investors have lost all their money because the trading exchange they had their digital coins on was hacked. As an example, the scandal surrounding the FTX exchange can be mentioned here. Institutional investors are also affected.

2. You make losses because you trade emotionally.

Numerous people have become poor or lost money by trading cryptos because they were too emotional. Always trade rationally, buy monthly and use bull markets to realize your profits. If you have made book losses, it is advisable to wait patiently for the next bull market and not sell hastily and in a panic.

Trading cryptocurrencies is for savvy investors who are willing to take risks

The cryptocurrency asset class is a very volatile market. Note that although there are very strong price increases. However, there is also the risk of total loss and you have few options to hedge your risk. Additionally, there is a risk that you will make technical mistakes or get hacked. Therefore, the market is suitable only for experienced investors who are willing to take risks. We recommend that you start with small amounts and gain experience before investing larger amounts.

Forecast and outlook

Numerous well-known investors, such as Warren Buffet, have been negative about the future of cryptocurrencies for years. The forecasts about how the prices will develop are basically far apart. While some market participants expect Bitcoin to rise to USD 150,000 and more, others do not expect cryptocurrencies to recover.

The market is very volatile and dependent on too many different factors to make a reliable cryptocurrency forecast. Most experts agree that digital currencies have a future. Uncertainty prevails as to what this future will look like. Last but not least, numerous governments are planning to introduce their own digital currency, for example the digital euro. The exact future is therefore uncertain.

Reading Time: 6 minutes

If you have a Pillar 3a account, it’s unlikely that you’ll be with exactly the provider that offers you the best terms. By switching to a different provider, you could save several hundred francs each year – depending on the size of your retirement savings and the difference in interest rates.

In this article, you will learn when it may make sense to cancel your pillar 3a. You will also learn how a change is possible and what you should bear in mind.

The most important facts in brief

• Ordinary withdrawal of Pillar 3a retirement capital is possible from five years before the AHV retirement age.
• Early withdrawal is only possible under the conditions strictly regulated by law.
• A change of product is possible at any time, as is a change of provider.
• There are sometimes considerable differences in conditions among providers.
• In the case of life insurance policies, early termination or switching is usually not worthwhile.

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Switching to pillar 3a: the main reasons at a glance

Pillar 3a products are ideal supplements to the state pension plan of Pillar 1 as well as the occupational pension plan of Pillar 2. Often, the tax-advantaged tied pension plan is also more lucrative for the self-employed than the option of buying into a pension fund. But what if you want to access the capital early?

There are various reasons for a pillar 3a switch or a pillar 3a dissolution.

The most important are:

• The conditions are unfavorable compared to competitors.
• Dissatisfaction with the general conditions of the agreement or with the provider.
• Pillar 3a dissolution due to reaching the age limit.
• Early withdrawal, provided the requirements are met (note the tax implications).

Reading tip: Find out everything about Switzerland’s 3-pillar principle here.

Cancel pillar 3a: When does it make sense and when not?

When the pension assets from pillar 3a are terminated, the pension capital is available. However, the legislator has provided clear regulations for this case. In addition, the termination should be carefully examined in each individual case, as disadvantages often arise in the event of premature termination. Basically, a distinction must be made between early withdrawal and reaching the age limit.

Early withdrawal

The rules for early withdrawal are similar to those for Pillar 2. According to the law, Pillar 3a assets may be paid out early in the following cases:

• Establishment of self-employment
• Repayment of mortgages
• New construction and purchase of owner-occupied residential property
• Moving out of Switzerland (important: demonstrably permanent)
• In the event of death
• In the event of drawing a full disability pension
• Purchase into a pension fund (if there is a pension gap as an employee, for example due to non-contributory phases)

In this context, a transfer of capital from pillar 3a to pillar 2 is tax-neutral. If the capital is transferred directly, no taxes are levied.

Reaching the age limit

The so-called ordinary withdrawal of the capital from pillar 3a is possible at the earliest five years before reaching the AHV retirement age. This is currently 64 years for women and 65 years for men. In principle, the retirement capital from a 3a account must be withdrawn in full in one sum. However, up to five 3a accounts are possible. The payout is subject to a reduced capital gains tax.

Special case of life insurance

The termination of a life insurance policy before the regular end of the policy term is always associated with costs, about which you should make specific inquiries.

In the first few years, the surrender value that is paid out is close to zero, and as the insured, it is not uncommon for you not to receive a single franc. This is due to the fact that in the first few years, the acquisition costs, including the acquisition commission, are initially charged. But even in the further course, an early termination of life insurance is usually associated with disadvantages. After all, an alternative investment would have to yield a substantial return, but this can only be achieved with a significantly increased risk.

Anyone who applies for new insurance coverage at a later date will basically have to buy it at a high premium. The higher entry age on the day of the new policy is then applied, and people in poor health may no longer receive insurance.

Switch to pillar 3a: How is it possible and when does it make sense?

You can change the provider of your pillar 3a account at any time. Many providers will even support you in doing so. It is also possible to convert the pillar 3a product. However, the money must remain in the 3a system.

It is therefore irrelevant whether the current balance is transferred to another bank or within the various pension solutions (interest account, life insurance or securities account).

For example, you can switch from a 3a interest account to a 3a securities account or vice versa. Both with your current bank and by transferring the capital to another provider. The notice periods applicable at the respective providers must be taken into account.

Special features for life insurance policies

Switching from one insurance policy to another pillar 3a product is possible in principle, but normally involves very significant disadvantages. The reasons for this are the same as those already described in the section on termination.

Special features of the securities custody account

When changing the provider, the previous bank sells the securities at the current daily rate. The new provider receives the capital resulting from the sale of the securities and in turn buys new securities at the then current daily rate. A direct transfer of the securities is not yet possible with any bank. This means that your pension capital is not invested for a few days.

Pillar 3a change: often sensible

The differences in conditions between banks can be enormous. It is therefore advisable to compare them regularly. Finally, the 3a assets can be transferred from one provider to another.

As of October 2022, the interest rates for 3a interest accounts range between 0.05 and 0.25 percent. Although still at a low level, there are clear differences in the interest rates. In absolute terms, these are also likely to increase with the current rising interest rate level.

If you have an investment horizon of more than ten years, you should also consider a 3a securities solution when making a switch. Although this means accepting a higher risk in the short term, experience has shown that you will usually achieve a higher return in the long term.

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Cancel or change your Pillar 3a account: These details are required

In order to terminate one’s pillar 3a account, the providers often provide their own forms, which facilitate the termination. It is particularly important to state the reason for termination, as this is required by law.

In addition, the following should be noted:

• As a rule, the termination must be in writing (providers usually provide information on their website and provide forms).
• Indicate your 3a account number.
• When switching securities, it is useful to indicate that the existing securities still have to be sold.
• When changing providers, name, address as well as the new account number should be provided.
• Find out in good time about your provider’s notice periods, as these can be set by the providers themselves.

Change provider Pillar 3a account: Expiration

When switching, keep in mind that you can only ever cancel or switch the entire account balance of a 3a account. For this reason, it always makes sense to distribute the deposits over several 3a accounts.

The switch is carried out in the following steps:

1. Opening of the new 3a account with the new provider.
2. Wait for confirmation of the opening of the new account from the new provider.
3. Cancel the 3a account with the current provider and order the transfer of the retirement assets to the new account.
4. Previous provider sends confirmation of termination.
5. In the case of a securities account, the units are sold at the current daily price.
6. Pension assets are transferred to the new 3a account.

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Frequently asked questions (FAQ)

What explains the differences in conditions among providers of pillar 3a accounts?

Most banks offer a fee-free 3a account. However, fees of between 0.4 and 1.2 percent must be expected for 3a securities accounts.

The differences in the conditions are due to the different business models of the banks. The individual banks calculate themselves what conditions they can offer for their 3a accounts. New low-cost offers have emerged in particular as a result of advancing digitization.

Are there any costs when switching 3a account providers?

There are usually no costs for regular retirement withdrawals. However, since providers want to keep their customers for as long as possible, many providers now charge fees for early withdrawals or when switching providers. According to current experience, these can amount to up to 120 francs.

Are there any special offers with new providers?

Some providers now entice customers who switch a securities account to them by assuming all transfer costs.