Category: Blog Articles

There are many convincing reasons to look into the possibilities of investing money. These include exciting travel destinations, a good education for the children and, above all, being able to look to the financial future without worries. But an efficient investment strategy has to be learned.

Use this article to find out about the main investment solutions and identify the investment strategy that is right for you.

The most important facts in brief

• An investment strategy is optimal when it best suits the investor.
• Diversification can reduce risks.
• Investing money regularly over the long term is the safest way to build up wealth.
• Digitization enables investment advice for broad segments of the population.

Investing money in Switzerland: an overview of investment forms

When it comes to the question of the right form of investment, there is less of a distinction between good and bad. Which financial product makes sense for you to invest in depends much more on your investment horizon, the timing and, in particular, your personal risk tolerance. In addition, your financial requirements also determine the optimal investment strategy. However, in order to be able to make the right investment decision at any time, you should be informed about all essential forms of investment.

1. Call money and time deposit

Overnight money is a safe and flexible investment that complements your checking account. In a call money account, you deposit money that you would like to have at your disposal at any time. However, with the start of the low-interest phase, many banks have discontinued their offers for call money. While offers are now on the rise again in other European countries, they are limited in Switzerland and hardly any significant interest can be expected. In addition, offers for call money tend to appeal to well-off investors due to the minimum sum of CHF 100,000 that is often required.

While the interest rate on overnight deposits can change at any time, the interest rate on time deposits is guaranteed during the term of the deposit. Time deposits, also known as term money, are therefore suitable as an investment for funds that you only need in the medium term. In Switzerland, time deposits are usually offered with terms of 3 to 24 months. Security and the ability to plan are the main features of this type of investment. However, you cannot currently expect more than one percent interest for this investment. Therefore, it is not suitable as an investment for long-term wealth accumulation.

2. Bonds

Bonds are issued by companies or governments as a source of financing and are usually rather low-risk investments for investors in comparison. They belong to the group of fixed-interest securities. The issuer undertakes to pay out the capital plus the agreed interest at maturity. In Switzerland, private investors often invest in so-called medium-term notes. The issuers are the public sector and credit institutions. Medium-term notes are offered with maturities of up to ten years. So if you only need or want to get your invested money back within the next ten years, bonds are a possible form of investment.

3. Shares

By investing in shares, you become a direct shareholder in a company. As a shareholder, you share in the profits of the company. This share is paid out as a dividend. The return prospects for shares are promising in the long term. However, the possible price fluctuations must be taken into account.

Investing in individual shares requires not only a sound know-how but also an enormous time commitment. You should have sufficient knowledge of the markets in which you invest. In addition, stock market trading requires sound research as well as an assessment of company key figures.

To make the risk involved in trading stocks calculable, you should only invest that part of your assets in stocks that you can do without for a longer period of time. You must also be able to deal with short-term losses on individual stocks. Basically, the more specialized and narrow the markets are, the higher the risk. In this respect, the strategy must distinguish between promising short-term price opportunities and long-term investments in established companies with possible regular dividend payments. In the past, those who follow the basic rules for investing in the stock market have always been able to achieve returns well above savings interest rates for terms of ten years or more.

Reading-Tip: Investment Strategy in Focus: The Power of Income Strategy

4. Funds

Fund companies invest the money paid in by investors in various securities from different markets. The assets represent a so-called special asset, which is held in trust at a bank. This means that they are managed separately from the company’s assets and are therefore protected in the event of the fund company’s insolvency. Fund units can be returned to the fund company at the current price. When purchased, there is usually an issue surcharge and the fund company takes an annual management fee for its management.

Each fund invests in defined target markets. These can be, for example, global companies, high-opportunity companies in emerging markets or companies in the healthcare sector. This gives you the option of investing primarily in certain markets or diversifying your investment worldwide.

For long-term asset accumulation, fund savings plans with fixed monthly installments are suitable. This allows you to take advantage of the cost-average effect: when prices are low, you buy a higher number of units, and when prices are high, you buy a lower number.

Compared to investing in individual shares, there are the following advantages in particular:

• With a fund share, you invest in a large number of companies at the same time.
• The fund management takes care of buying and selling the individual securities.
• Risk diversification is made much easier with a fund.
• With fund savings plans, you save regularly and invest in the capital market for the long term.

Investing in funds is also a long-term investment. When making comparisons, therefore, pay primary attention to long-term performance.

5. ETFs

The principle of ETFs is initially the same as that of a “normal fund”. The main difference is that ETFs are not actively managed. Simply put, an ETF copies the composition of an index. This saves costs, which has made ETFs very popular in recent years.

For example, if you want to invest broadly in large and medium-sized companies worldwide, invest in an ETF that tracks the MSCI World Index. This index tracks about 1,500 stocks from over 20 countries. It is therefore considered a basic investment, even for beginners.

In a long-term comparison, investors have been able to generate returns of around six to nine percent in recent decades with a broad-based ETF such as the MSCI World.

6. Real Estate

The real estate market has only known one direction in recent years: up. Low interest rates have led investors to increasingly look for alternatives to safe savings investments. Because of the low interest rates on loans, many buyers have taken on high debts.

Real estate is also considered quite crisis-proof in Switzerland, especially in the preferred locations. However, this has caused real estate prices to literally skyrocket. The home ownership rate in Switzerland is therefore low, at around 35 percent, even by international standards.

If you invest in an owner-occupied home, you are protected against rent increases and terminations. This value will benefit you in retirement in the form of saved rent. If you purchase a property in order to rent it out, you will generate rental income in retirement and thus additional income, provided the debts for the property have been repaid.

The investment in land is considered solid and safe. Nevertheless, the term itself expresses that it is not a flexible investment – it is “immobile”. That means real estate is a way to diversify your portfolio. However, keep in mind that your life plans may change and also, for example, a change of location for professional reasons may make sense. In addition, initially, due to the high real estate prices in Switzerland, a high equity investment is required. Triggered by the ECB’s interest rate adjustments, the real estate market also seems to be calming down somewhat at the moment. You should therefore not necessarily assume further annual price increases above seven percent for your investments, as has often been the case in recent years.

7. Precious Metals (Gold & co.)

Gold, silver, platinum and other precious metals are not only among the oldest forms of investment. They are also considered a crisis-proof investment. At the outbreak of the pandemic, the price of a troy ounce of gold therefore rose to over 2,000 dollars by the summer of 2020. But the stock market recovered from its slump quickly thereafter. At the same time, the price of gold fell again to around 1,700 dollars at the end of 2020. It is now (as of January 2023) around 1,900 dollars per troy ounce.

Experience shows that precious metals do not generate returns. You should take this into account in your considerations if you are interested in the supposedly safe investment. Overall, precious metals are therefore only recommended as an admixture and diversification of your assets.

8. Cryptocurrencies

In addition to Bitcoin, the first and largest cryptocurrency, there are now a large number of digital currencies worldwide. They are based on blockchain technology and, compared to conventional currencies, therefore only exist as data within a global computer network. For private investors, these investments represent an extremely speculative investment alternative.

The cryptocurrency Bitcoin has been around for over 10 years. Nevertheless, cryptocurrencies are not officially recognized currencies. For digital money, you first need a digital wallet. Trading is then done on one of the crypto exchanges.

The risk of cryptocurrencies is enormous, because no government guarantees the value of cryptocurrencies. Currently, cryptocurrencies can therefore not be classified as a safe investment and are not suitable for retirement planning.

If you are interested in cryptocurrencies despite the high risks, consider the following points:

• The prices of cryptocurrencies are very volatile. Exclusively supply and demand determine the price.
• New and small cryptocurrencies are particularly risky, as they may not continue due to lack of capital.
• Since cryptocurrencies are not regulated, there is no overarching supervision. Thus, there is a lack of any investor protection, such as deposit insurance.
• Countries sometimes react with reservations towards digital currencies. In China, for example, crypto trading is prohibited. The European Central Bank is considering its own digital currency, which would weaken the other cryptocurrencies.

9. Foreign Currency

Trading in currencies (foreign exchange trading) is highly speculative – exchange rates can fluctuate enormously. In addition to direct foreign exchange trading, foreign currency accounts are also offered for investments such as time deposits or bonds. Please note that you bear a double risk. In addition to the issuer risk, there is also the exchange rate risk. This means that even small fluctuations in exchange rates can wipe out interest rate advantages. In addition, foreign currency bonds are often only traded on the stock exchange to a limited extent, which can mean unfavorable prices when sold.

The price development of currencies depends in particular on the following factors within the respective country:

• economic stability
• political stability
• risk of inflation
• national debt

10. Private Markets

Private markets are investments that are not traded on a stock exchange, i.e. are not publicly available.

They are as follows:

• Private Equity: investments in unlisted companies.
• Private Debt: unlisted debt securities.
• Private Infrastructure: Investments in infrastructure assets such as water supply, waste disposal, bridges or hospitals.
• Private Equity Real Estate: Investments in real estate in all sectors.

Private Markets has long been the preserve of institutional investors, but has now grown in importance among high net worth private investors. It involves risk capital. The high potential returns are offset by the risk of total loss. Therefore, the investment form serves as an admixture to optimize returns for very large assets.

11. Invest money through asset managers

It is no longer necessary to be a millionaire to invest your money professionally. Digitization and the use of funds and exchange-traded funds (ETFs) are opening up wealth management solutions to a broad public. Finally, investing money profitably requires time, which is not sufficiently available to everyone.

Nowadays, it is possible for everyone to make use of professional asset management – also known as asset management. Depending on the provider, you can start with an amount of about 30,000 francs. Fees have also become affordable for asset managers with a digital approach.

Professional asset managers start with the analysis

Experienced investment advisors will first determine your needs.

This involves clarifying the following points, among others:

• How much risk are you able to take?
• What level of risk are you willing to take?
• What is your investment horizon?

Based on the analysis, the asset management company will submit an individual investment strategy to you. The following basic orientations are possible:

• conservative (low share of equities, low risk of loss, lower return prospects)
• balanced (medium share of equities and medium risk)
• aggressive (higher share of equities, higher return prospects, higher risk)

In practice, you may find further, finer gradations.

Investing Money Efficiently: How to Find Your Personal Investment Strategy

Studies show that most of the long-term return is determined by the strategy you choose. It is important that you stick to the chosen strategy over the long term. So make sure that the investment strategy suits you and your personal circumstances. The following sections will help you find your investment strategy.

Portfolio theory: Spreading assets – optimizing return and risk

If you have studied investment strategies a bit more intensively, you have already come across the hint that you should diversify your assets. But what does diversify mean and what mix makes sense?

Since its publication in 1952, the portfolio theory of the US economist Harry Max Markowitz has become one of the most successful and important theories of capital market theory. Its central concept is risk diversification, by which an investor’s assets are skillfully invested to simultaneously achieve the highest possible return while taking as little risk as possible.

It means spreading one’s portfolio across multiple asset classes to reduce dependence on any one investment. A well-diversified portfolio can help investors limit their risk while taking advantage of potential gains.

Key points in asset diversification are:

• Assets are divided into different asset classes.
• The asset classes should have different potential returns and risks (including equities and bonds).
• Within the asset classes, the selection of individual stocks leads to an optimization of the risk-return ratio (such as global equities and emerging market equities).

The risk of losses generally decreases with the breadth of the portfolio’s risk diversification. However, it should be noted that diversification does not automatically increase returns, but rather ensures capital preservation and hedging.

Diversification depends on the amount of capital invested

The smaller the investment, the less diversification usually comes into play for the investor.

With 1,000 francs, you can only invest directly in a few asset classes. For this reason, investing in ETFs or funds is particularly suitable for small amounts, as here you are already investing directly in diversified portfolios.

If more than 10,000 francs are invested, a loss – depending on your financial status – can be quite painful. If you put all your money into a single investment, you cannot rely on capital preservation and it can be difficult to recoup the loss through future returns. That’s why it’s hugely important to plan your portfolio carefully.

In practice, this means that bonds, precious metals or real estate are considered to be safer forms of investment. Based on the amount of your total assets, you decide in how many different “safety components” you invest your money. Accordingly, up to a certain level of assets, it may be sufficient to include only bonds as “safety anchors” in your portfolio. For large assets, another asset class such as real estate makes sense.

From investor type to investment strategy

When it comes to investing money optimally, it is not a question of finding the only right strategy, but rather the right one.

To do this, consider the following personal requirements:

• Investment horizon: Have you started your first job after graduation and are beginning to plan for retirement? Or are you in your mid-forties and intensively thinking about how you can secure your standard of living later in retirement? Perhaps you have also reached retirement age and are now concerned with preserving your assets. So is it a matter of short-, medium- or long-term investments?
• Risk: How much risk are you willing to accept? How do you personally respond to temporary losses in your wealth building blocks?
• Investment goals: Is it about retirement planning or achieving specific goals, such as purchasing real estate?
• Financial background: How large are your assets and your monthly available budget for wealth accumulation?
• Financial experience: Do you have experience trading financial instruments and what amount of time would you like to spend on this on a regular basis?

Investment fees

Fees come at the expense of returns. Therefore, it is important to compare the fees of different providers. Nevertheless, you should always consider the service you receive for charged fees. For example, active asset management can pay off in the long run. After all, as a private investor, you usually have neither the know-how nor the time required to make sound investment decisions on a daily basis.

The main fees that occur as part of your investment are:

• Fees for buying and selling: most financial products have a transaction fee. Fees are incurred on securities transactions on the part of the exchange and the contracted bank.
• Custodial fees: Banks charge custody fees for holding securities in a securities account. Online brokers offer lower fees.
• Issue surcharge for funds: The surcharge is calculated on the purchase of investment funds. It can amount to up to five percent of the purchase price.
• Administration fees: Administration or management fees are usually calculated as an annual percentage. It is important to pay attention to what this fee is for and what it includes. For actively managed funds, the fee is for fund management, which is research and professional trading.
• Follow-up fees: sometimes fees are charged for changes to the investment product or risk profile. So pay attention to what potential follow-up costs are associated with a particular investment.

Early start expands investment opportunities

Compound interest is a crucial aspect of earning a high return. It causes assets to grow faster and faster as the investment period progresses.

The probability of making a loss on an investment decreases over time. This means that the chances of success increase with a long-term investment.

Historical analysis of the Swiss stock market up to 1969 shows that a positive return was achieved in 40 out of 53 years. These previous results are no guarantee of future gains. But they demonstrate that it can be worthwhile to be in it for the long term, despite fluctuations in share prices.

The reliable way: invest regularly

Experience shows: regular investing beats hectic trading. In any case, it is hardly possible to determine exactly the right time to buy or sell every security. Saving instead of waiting is therefore the motto.

In the case of fund savings plans, the cost-average effect also shows how advantageous regular saving can be: If you invest a fixed amount each month, a higher number of units will be bought when prices are low and a lower number when prices are high.

Patience pays off: Learning to invest

The more time you have until retirement, the easier it is to practice patience to set yourself up for long-term success. The stock market provided an impressive example of this in the 2020 corona year. When the pandemic broke out in the spring, the capital markets collapsed and double-digit price losses were the order of the day. But by the end of the year, the barometer had largely returned to pre-pandemic prices. The market is wave-like. But in the long term, economic growth leads to rising prices.

Recognizing unprofitable loss leaders

Excessive returns can generally only be achieved with increased risk. Therefore, compare the possible returns of an asset class with the offer you are presented with. For example, if yields of two percent are common for time deposits with a certain term, you should become critical of an offer with five percent interest. Either the offer comes from an unsound provider or the economic framework data of the issuer or the country from which the offer originates are desolate.

Investment strategy: practical examples

To illustrate a differentiated investment strategy, here are three examples.

Young people

Young people have the greatest latitude for riskier investments because they still have many years to recoup any losses.

One possible investment strategy:

• Overnight account (to build up a reserve of about three to five months’ expenses).
• Mutual fund savings plan or ETF savings plan (start with small monthly contributions, equity portion can be 90 to 100 percent depending on direction, use low-cost digital investment advisors)
• Time deposit: If desire to acquire property, park money over medium term via time deposits if necessary.

Middle-aged people

At this stage of life, people should modify their investment strategy somewhat and increase the proportion of investments with a higher degree of security.

One possible investment strategy:

• Call money account (reserve)
• Securities account (limit the share of stocks to 80 percent, the rest fixed-interest securities and precious metals, if necessary use investment advice)
• Fixed-term deposits (for fixed goals such as paying off a mortgage or buying a car)
• Real estate

People of advanced age

With aging, the risk of no longer being able to compensate for losses on investments increases. Therefore, an investment strategy should focus on more defensive options. However, due to longer life expectancies, you do not have to completely forgo opportunities for returns.

One possible investment strategy:

• Call money account (reserve)
• Securities account (limit the share of equities to 50 to 60 percent. Use the remainder in fixed-interest securities and investment advice)
• Real estate (unencumbered)
• Time deposit (short-term time deposits, better interest compared to overnight money, maintain liquidity by splitting into several time deposits with different maturities)

Opportunities in Switzerland’s three-pillar system

In addition to the first pillar for state subsistence and the second pillar for occupational pension provision, the third pillar plays a decisive role within your investment strategy.

Pillar 3a: You enjoy tax advantages within the maximum amounts for the payments into the private pension plan of pillar 3a. Pillar 3a retirement planning is typically implemented with solutions such as life insurance, retirement accounts and retirement savings accounts. This is possible via a bank foundation or via insurance provision with a Swiss insurance company.

Pillar 3b: The investment in pillar 3b is not subject to any state rules. However, the contributions do not have a direct tax effect either. Unlike pensions from pillar 3a, which are fully taxed, however, pensions from the free 3b pension plan are only taxed at 40 percent.

Reading tip: Switzerland’s 3-pillar principle

Frequently asked questions (FAQ)

What is meant by the term “magic triangle”?

The magic triangle illustrates the balance between the three investment objectives of security, return and availability. The three investment objectives depend on each other and relate to each other in a certain way.

There is no investment form that satisfies all three desires. You must weigh which factors are most important to you.

Which investment will give me the best return?

Unfortunately, even the best investment advisors cannot look into the future, but they can look into the past. Of all the investment options, stocks offer the greatest potential for returns, but also increased risk.

You will have to accept short-term losses when investing in stocks. In the long term, however, you can expect a considerable increase in value: over the last 100 years, Swiss share values have increased by an average of seven percent per year.

What basic mistakes should be avoided when investing money?

• Timing and market analysis replace investing money regularly: The safest way to build your wealth is to save regularly over the long term.
• Putting all your eggs in one basket: Think diversification when saving as well as investing.
• Accept high costs: Digitization has led to interesting and at the same time low-cost offers.
• Extrapolate performance from the past: Markets can change.
• Constant buying and selling: Stay true to your strategy and don’t pay unnecessary fees for frequent switches.

What role does inflation play in investing?

The average return on your investments should be above the rate of inflation. You will only achieve this in the long run by taking manageable risks in your investment strategy.

How high should the proportion of liquidity be when investing money?

Liquid investments should be a reserve for expenses that cannot be met from regular income. Experience shows that three to five months’ salary is reasonable for this purpose.

Depending on the individual investment strategy, it may be advisable to focus not only on pure price gains but also on stable and sometimes very attractive dividends. These offer regular payouts and other advantages. But what do investors need to consider when investing in shares and how can lucrative dividends be recognized?

These and other questions are addressed in this guide on the subject of dividends.

The most important facts in 30 seconds

• Dividends are regular distributions to shareholders of companies.
• They are a distribution of corporate profits for a shareholding in a listed company.
• A distinction is made between cash dividends, stock dividends and dividends in kind.
• There are also stock corporations that do not pay dividends.
• Dividends are usually paid out to shareholders annually at the end of a fiscal year.

Dividend Meaning: What is a dividend?

Stocks are a good and long-term investment with a constant return. Investors act as shareholders and provide financial support to the company. Dividends are given by successful companies as a payout to shareholders, which gives investors a share of the company’s profits. This dividend yield is an important factor in stock valuation. Compared to bonds, stocks often have a higher yield in the long term, which makes investing in stocks attractive for private investors. Small price fluctuations can be cushioned by regular dividend payments.

Different types of dividends

Basically, a distinction can be made between different types of dividends.

• Cash dividends are the most common type of dividend payment. In this type of distribution, shareholders are paid a portion of the company’s profits. It should be noted that not all companies make regular cash dividend payments. Some public companies pay semi-annual dividends, while others make an annual payment or forgo it completely. In Germany, dividends are usually paid once a year. As a rule, dividends are only paid if the company has generated net income.
• A stock dividend is a distribution in the form of additional shares. If you own such a stock, you receive more shares in relation to your original share. This type of distribution allows investors to increase their stake in a company without having to invest additional money.
• With a non-cash dividend, shareholders are rewarded with non-cash benefits such as gift cards or products. When you join this type of dividend as a shareholder, you receive these gifts directly from the company. In practice, however, this type of dividend plays a rather minor role.

Investors should learn about the different types of dividends and understand which strategy suits them best. If you want to invest in a particular company, you must accept the form of dividend offered as it is.

If the dividend is paid, then the stock is trading ex-dividend. The value decreases by the amount distributed and the price of the stock decreases accordingly.

When comparing several shares, the dividend yield is particularly meaningful. This is the ratio of the dividend per share in the period under review to the current market price of the share.

Which companies pay a dividend and which do not?

Dividends are generally paid out by stock corporations. Production companies, insurance companies and commodity companies in particular like to let their shareholders share in the annual net profit. The situation is different for growth companies, for example, which use the annual profit primarily for investments.

There are companies that do not distribute dividends to their shareholders. This can have various reasons. Some stock corporations want to use the profits they generate to increase equity, finance new growth or build up reserves.

Especially in growth industries, companies often use their profits to invest in research and development. For this reason, there are also shares that do not pay dividends.

At the end of the fiscal year, the Executive Board of a stock corporation proposes to its shareholders at the Annual General Meeting the payment of a dividend and the respective amount. As a rule, this amounts to approximately half of the profit. The shareholders decide on this proposal during the Annual General Meeting. Shareholders enjoy voting and participation rights that are generally based on the number of shares held.

A simple majority of the shareholders present is required to approve the proposal. If the proposal is rejected, shareholders will not receive a dividend. If shareholders approve the proposal to pay a dividend, they automatically receive the payment three days after the meeting. Even if the company does not report a profit, a dividend may be declared. In such a case, it is paid out at the expense of the company’s substance.

Reading tips:

• Private financial planning – how to achieve your individual goals.
• Fees when investing: Asset management, portfolio, shares, funds & Co.
• Stock market crash: Stock market down – how should you react?

Which Swiss companies offer a high dividend?

The world’s largest dividend payers have weathered the pandemic faster than many market participants expected. According to the global Janus Henderson Dividend Index, USD 302.5 billion was already paid out to shareholders in the first quarter of 2022, an increase of eleven percent compared to 2021. Further increases are indicated for the full year. In addition to the differences typical for the country, there are influences such as inflation as well as weak demand in important economic areas and other factors.

With a dividend volume of CHF 16.5 billion in the first quarter, Switzerland occupies the top spot in the European ranking. This is mainly due to the two companies Novartis and Roche.

Below are some Swiss companies with high dividends:

• Swiss Re with a dividend of 8.10%.
• BB Biotech with a dividend of 6.20
• HBM Healthcare with a dividend of 4.80
• Sulzer with a dividend of 4.80
• Novartis with a dividend of 3.80
• ABB with a dividend of 2.90
• Galenica with a dividend of 2.80
• Nestlé with a dividend of 2.40
• Roche with a dividend of 2.40

Dividends paid in the past are only an indicator and no guarantee for dividends in the future.

Advantages and disadvantages of dividends

Stocks can provide additional income to their investors through dividends, but they also come with some risks. Investors should therefore always weigh up the pros and cons of dividends before making a decision.

As a shareholder, you are a stockholder in a company. This gives you voting and participation rights, which you can exercise at the Annual General Meeting. You therefore have an active right of co-determination and can help shape the future of a company. However, the co-determination opportunities for private shareholders are generally limited due to the comparatively small number of shares.

One of the biggest advantages of dividend investments is the regular income. Many companies pay out a certain amount of dividends on a set rotation, which enables investors to build up a steady income. Another advantage of dividend payments is the increasing interest of shareholders. This gives the company more capital with which to operate. In this context, the share price can also rise and investors enjoy additional price gains. By reinvesting the dividend, investors can also benefit from compound interest over a longer period of time.

Possible disadvantages for the company can be if the distribution is higher than the net profit for the year. In this case, they have an additional financial burden and further investments are rarely possible in these cases. This can happen because companies try, if possible, not to reduce the amount of the dividend, as this is often received very negatively. For the same reason, a company will also tend to increase dividends cautiously and defensively.

For investors, on the other hand, there is the disadvantage that a company can reduce the dividend when profits are low. However, this is often only done when the company’s economic situation deteriorates. Thus, it is advisable for investors to always conduct a thorough review of the company’s financial situation before investing in its stock. Of course, this also applies to shares that do not pay dividends.

Dividends and taxes in Switzerland

Dividends can be an attractive additional income for investors. But dividends are taxed as income along with your salary. This can reduce the annual return. However, there are some exceptions to this rule.

In recent months, the dividend strategy has gained particular popularity. They can be planned and are relatively constant, which makes them very suitable for investments. From a tax perspective, a distinction can be made between three categories.

• Ordinarily taxable dividends
• privileged taxed dividends
• tax-free dividends

Ordinarily taxable dividends are the rule. Switzerland generally levies a withholding tax of 35 percent on dividends. For persons liable to tax in Switzerland, it acts as a kind of “safeguard tax”. This is deducted directly from the dividend income paid out. In this way, possible tax evasion is effectively prevented.

Shareholders from Switzerland and abroad can reclaim this withholding tax by disclosing the dividend income in their tax return. The amount is taxed via income tax. For this purpose, it is mathematically added to ordinary income and charged according to the tax progression of the respective canton of residence. As a result, the dividends are taxed at the gross income and thus at a lower tax rate.

In addition to ordinary taxable dividends, there are privileged taxed dividends. These concern shareholders with qualified holdings and are subject to partial taxation. This means that 70 percent of the dividends are taxable at federal level and only 50 to 80 percent at cantonal level, depending on the canton. However, you must meet one essential requirement for this. At the time of the dividend payment, the participation in the share or nominal capital of a corporation or cooperative must be at least ten percent. Tax-free dividends are mainly relevant for investors who build up their participation through a corporation and claim the participation deduction.

Investors from Switzerland who have U.S. dividend shares in their portfolio receive only 70 percent of the dividend net directly from their bank. Another 15 percent is remitted to the U.S. tax authorities, while 15 percent is withheld as backup tax by the Federal Tax Administration (FTA). There is no additional withholding tax.

The double taxation agreement (DTA) between Switzerland and the USA allows you to credit the US withholding tax against taxes in Switzerland. This also applies to legal entities domiciled in Switzerland. Tax-exempt institutions, such as charitable foundations, can be exempt from US withholding tax upon application.

When do you receive a dividend payment?

Usually, the dividend is transferred to the shareholder’s account once a year. Some companies also make profit distributions to their shareholders on a quarterly or semi-annual basis. This cycle usually depends on the country in which the respective company is located. The payment of a dividend is decided at the company’s Annual General Meeting.

Those who design their portfolio for continuous dividend payments can generate income every month thanks to quarterly dividends. With targeted investments, the distributions can also be stretched. Some Swiss companies are early in the yearly comparison. Nestlé, Novartis and Roche pay their annual dividends in March or April, ahead of most German companies. Worldwide, experience shows that most money flows in the second quarter of the year.

How often are dividends paid out?

In Germany, dividends are generally paid once a year. In the USA, however, monthly or quarterly payments are also possible. In addition to regular distributions, one-time special dividends are also possible. This information can usually be found in the Articles of Association of a stock corporation. The dates are also announced at the Annual General Meeting.

How high is the dividend?

The dividend of a stock corporation is a distribution to the shareholders resulting from the net profit for the year. It is often defined as a percentage of the profit. The amount of the dividend depends on many factors. These include, among others, the company’s net assets, financial position and results of operations, as well as the expectations of shareholders. Growth companies often decide to invest and skip dividends altogether. Larger and more established companies opt for a higher dividend rate to guarantee regular returns to their shareholders.

The level of the dividend can also be influenced by external factors. These include, in particular, the general state of the economy and the company’s financial conditions. It is important for investors to know that the amount of the dividend payment can fluctuate each year. However, for most companies, the dividend is based on the previous year’s level.

What is meant by ex-day?

The ex-dividend day is an important day for shareholders. It refers to the first day after the Annual General Meeting at which the amount of the dividend was determined. Anyone who still owns shares in the company at that time will be paid on the dividend payment day.

You will receive a dividend if you bought the respective share before the ex-date and hold it until that date. On the other hand, if you buy a stock after the ex-day, you will miss the dividend for that fiscal year. The ex-day should also be considered when investing in day trading. Many day traders close out their positions right before or right after the ex-day to make sure they don’t miss a dividend payment. One advantage of day trading is that you can easily predict the ex-day and plan specifically in this way.

How is the dividend paid – what do I have to do?

In order to be entitled to a dividend, you must have the shares in your own securities account on the day of the Annual General Meeting. Shares in foreign companies must be purchased before the ex-dividend date, i.e. the date on which the dividend is paid. Dividends are always paid per share and are therefore sometimes calculated on the basis of the number of shares held. After payment, the dividends are credited directly to the investor’s securities account.

How do equity funds or ETFs handle dividends?

Equity funds collect the dividends first before distributing them to the owners. This can be done through a distribution, which actually transfers money to the fund owners’ accounts. Alternatively, it can be done through reinvestment, whereby the fund reinvests the dividends it receives and the price of an individual share increases accordingly.

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.

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.

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.

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.

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.

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.

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.

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.