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  #321  
Old 29.09.2015, 11:01
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Re: 3rd Pillar Pension Fund

Difference between insurance and bank account: Flexibility.

Advantage of a bank account:

Every single year you can freely choose anywhere from 0 up the maximum allowed amount by the law. Just as you like, no commitment.

You can choose a different provider every year. (If you intend to use the money for retirement, and you do not live in Basel. You should have for best tax savings at the end 4 accounts)

No brokerage fee.

Face value == book value.

You can move the money easily to a different provider. (You can not move part of an account. Some minimum look in time may apply. Some banks charge a withdrawal fee. Specially stay away from the later.)

Life insurance is mostly not needed (specially if not married and no kids) and can be arranged more flexible, cheaper, and better tailored outside a pillar 3a scheme.

Disability insurance is mostly not needed and can be arranged more flexible, cheaper, and better tailored outside a pillar 3a scheme.

Did I say face value == book value?
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  #322  
Old 30.09.2015, 16:58
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Re: 3rd Pillar Pension Fund

If you're likely to be in Switzerland for a short period, e.g. 3-5 years, then you should go with the bank option.
If you're likely to be here long-term (10+ years) then insurance is the way to go.
It's not all about how much money you're going to get back at the end. There are some important coverage options in 3rd pillar insurance contracts that aren't there with the bank.
Death benefits, ok. May or may not be needed but they are there.
Disability benefits - you don't have to include these in an insurance 3rd pillar meaning more can go towards the savings part.
Premium waiver. Not available at the bank.
If you have family and you plan on staying in Switzerland, this could is particularly important.
When you take a 3rd pillar contract out, the main reason is for your retirement. To complete your potential income loss through the 1st and 2nd pillars.
It is tax efficient as the Swiss social insurances are based on a 3 pillar system and the Confederation has to encourage people to take out a 3rd pillar contract. Making it tax efficient is a way of doing this.
This is written in black and white in the Swiss Confederation.
If you are on long-term disability and therefore can no longer work and no longer pay your premiums, you won't get the full pension you expected when taking the 3rd pillar out.
Therefore, the insurance company will pay your premiums in your place so that this won't be missing.

So it's normal that part of your premium goes towards the death benefits and premium waiver etc. It's nothing to do with commissions regardless of what people think.
Bank employees are paid commission when you open a 3rd pillar bank account with them.

Basically :

- you're likely to be here for 3-5 years > bank 3a account
- you're here for the long haul > insurance 3a policy
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  #323  
Old 30.09.2015, 17:05
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Re: 3rd Pillar Pension Fund

Surely if your in a job, you will get the company disability pension in any case.

As job's are not for life & things change, I believe taking out an insurance product is likely to be a bad idea. Unfortunately the cost of the 'product' is hidden, if the person taking it out realised the charges were going to amount to several thousands of francs they would run a mile on their own. The sooner that 'ongoing investment products' were outlawed the better IMHO.

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If you're likely to be in Switzerland for a short period, e.g. 3-5 years, then you should go with the bank option.
If you're likely to be here long-term (10+ years) then insurance is the way to go.
It's not all about how much money you're going to get back at the end. There are some important coverage options in 3rd pillar insurance contracts that aren't there with the bank.
Death benefits, ok. May or may not be needed but they are there.
Disability benefits - you don't have to include these in an insurance 3rd pillar meaning more can go towards the savings part.
Premium waiver. Not available at the bank.
If you have family and you plan on staying in Switzerland, this could is particularly important.
When you take a 3rd pillar contract out, the main reason is for your retirement. To complete your potential income loss through the 1st and 2nd pillars.
It is tax efficient as the Swiss social insurances are based on a 3 pillar system and the Confederation has to encourage people to take out a 3rd pillar contract. Making it tax efficient is a way of doing this.
This is written in black and white in the Swiss Confederation.
If you are on long-term disability and therefore can no longer work and no longer pay your premiums, you won't get the full pension you expected when taking the 3rd pillar out.
Therefore, the insurance company will pay your premiums in your place so that this won't be missing.

So it's normal that part of your premium goes towards the death benefits and premium waiver etc. It's nothing to do with commissions regardless of what people think.
Bank employees are paid commission when you open a 3rd pillar bank account with them.

Basically :

- you're likely to be here for 3-5 years > bank 3a account
- you're here for the long haul > insurance 3a policy
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  #324  
Old 30.09.2015, 17:11
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Re: 3rd Pillar Pension Fund

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Difference between insurance and bank account: Flexibility.

Advantage of a bank account:

Every single year you can freely choose anywhere from 0 up the maximum allowed amount by the law. Just as you like, no commitment.

You can choose a different provider every year. (If you intend to use the money for retirement, and you do not live in Basel. You should have for best tax savings at the end 4 accounts)

No brokerage fee.

Face value == book value.

You can move the money easily to a different provider. (You can not move part of an account. Some minimum look in time may apply. Some banks charge a withdrawal fee. Specially stay away from the later.)

Life insurance is mostly not needed (specially if not married and no kids) and can be arranged more flexible, cheaper, and better tailored outside a pillar 3a scheme.

Disability insurance is mostly not needed and can be arranged more flexible, cheaper, and better tailored outside a pillar 3a scheme.

Did I say face value == book value?
what's the basel angle?
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  #325  
Old 30.09.2015, 17:23
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Re: 3rd Pillar Pension Fund

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Surely if your in a job, you will get the company disability pension in any case.

As job's are not for life & things change, I believe taking out an insurance product is likely to be a bad idea. Unfortunately the cost of the 'product' is hidden, if the person taking it out realised the charges were going to amount to several thousands of francs they would run a mile on their own. The sooner that 'ongoing investment products' were outlawed the better IMHO.
Not necessarily, no.
It depends on the insurance policy your employer has taken out and if they have taken one out.

Either way, 2nd pillar is capped as you know and an average person who has worked in Switzerland for 44 years without taking a break (21-64/65) and has contributed fully during that period will get approx. 60% of their last salary upon retirement.
The third pillar is for the remaining 40%.

I think you're mixing up premium waiver, disability income and pension income.
Perhaps I didn't explain clearly enough, apologies.

Yes, you will get disability income through your employer if they have a loss of earnings scheme (otherwise it's the chelle Bernoise/Bloise etc.).
However, this will be lower than what your income was and had nothing to do with your 3rd pillar premiums.
If you are on long term disability and can no longer to put money into your 3rd pillar bank account, upon retirement you'll get the amount that was in there when you stopped contributing.
If you have a 3rd pillar insurance, what you were initially predicted to receive will remain unchanged thanks to the premium waiver.
If you want to calculate it, it could literally be worth thousands.

To outlaw this kind of insurance policy would be to change the whole Swiss Confederation and could potentially leave a lot of people in financial strife.

They're more likely to become compulsory in the future rather than outlawed to be honest.
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Last edited by jenny; 30.09.2015 at 17:23. Reason: typo
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  #326  
Old 30.09.2015, 17:24
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Re: 3rd Pillar Pension Fund

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Basically :

- you're likely to be here for 3-5 years > bank 3a account or regular stock shares/fund (depending on your risk profile)
- you're here for the long haul > regular stock shares/fund, bank 3a account, maybe insurance if needed outside 3a
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what's the basel angle?
For best tax savings, you would cash out one account every year before retirement. Basel AFAIK sees this as ILLEGAL tax avoidance. Sorry, could not find a link, maybe it is just a myth (the Basel thing.)

Last edited by aSwissInTheUS; 30.09.2015 at 17:32. Reason: Happy Stephen ;-)
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  #327  
Old 30.09.2015, 17:46
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Re: 3rd Pillar Pension Fund

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. . . Basel AFAIK sees this as ILLEGAL tax avoidance. Sorry, could not find a link, maybe it is just a myth (the Basel thing.)
I also had a vague memory that at least one canton bundled, for tax purposes, withdrawals from a person's 3. Sule over multiple years to remove any benefit from a phased withdrawal. This does not appear now to apply, and in all cantons, there is a benefit in doing this, if my interpretation of this table is correct:
https://www.vermoegenszentrum.ch/new...ter-12-14.html
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  #328  
Old 02.11.2015, 12:02
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Re: 3rd Pillar Pension Fund

I am thinking of taking out a 3rd Pillar account, I spoke to my Postfinace RM and he advised putting 70% in an insurance account and 30% in a bank account.

He said the interest would be 1% (and would go down soon), while not the very top interest possible, this seems towards the top (according to en.comparis.ch)

There is a good chance I will stay in Switzerland until I retire, and I may get married and have children.

Three points:

-I have done a bit of googling, and there was the suggestion that there would be management fees for the insurance, but not the bank account.

-I heard it is easier to change providers if you go for the bank account

-I already have a certain amount of disability / death insurance via my job. Do I really need to have an initial insurance via my 3rd pillar?

In short, should I go with my RMs advice or should I stick everything in the bank account part (even though I plan to stay long term and may have dependents in the future)
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  #329  
Old 02.11.2015, 12:52
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Re: 3rd Pillar Pension Fund

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I am thinking of taking out a 3rd Pillar account, I spoke to my Postfinace RM and he advised putting 70% in an insurance account and 30% in a bank account.

He said the interest would be 1% (and would go down soon), while not the very top interest possible, this seems towards the top (according to en.comparis.ch)

There is a good chance I will stay in Switzerland until I retire, and I may get married and have children.

Three points:

-I have done a bit of googling, and there was the suggestion that there would be management fees for the insurance, but not the bank account.

-I heard it is easier to change providers if you go for the bank account

-I already have a certain amount of disability / death insurance via my job. Do I really need to have an initial insurance via my 3rd pillar?

In short, should I go with my RM’s advice or should I stick everything in the bank account part (even though I plan to stay long term and may have dependents in the future)
The investment profile really needs to be your decision and it depends on how long you have until you retire.

Personally, with > 10 years to retirement I wouldn't put anything in cash, the interest rate sucks - you should get more with an investment fund even with the management fees (dividend payments for fairly average stocks are better than cash interest rates, even before any capital growth).

I have no idea how the insurance part of the Pillar 3a works, specifically how the tax advantage works.

Edit: I think you meant "investment" not "insurance"? Although you can also do life insurance through P3a, which is the bit I don't know about.
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  #330  
Old 02.11.2015, 12:55
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Re: 3rd Pillar Pension Fund

I am also thinking of making a contribution before the end of the year, so very good to see this timely discussion. From everything I've read here, and thinking about it intuitively, I can't see a good argument for the insurance product. Unless you really need the life insurance coverage (which in my experience is normally provided by employers), it seems like you would just be paying for coverage you don't really need.

I hope you'll forgive me for taking the discussion in a slightly differernt direction, though. I am trying to figure out: is there is any benefit at all to the 3a account for tax-paying US citizens (such as myself)? My experience for the 2013 tax year (where we had really low CH taxes because we were able to write off a large refurb project) was that every franc I saved in CH ended up being paid to the US gov't. It leads me to believe that those saddled with a US passport really can't take advantage of any tax-savings tools, unless they also work in the US tax system. Does anyone have any views/experience on this?
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  #331  
Old 02.11.2015, 13:35
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Re: 3rd Pillar Pension Fund

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The investment profile really needs to be your decision and it depends on how long you have until you retire.

Personally, with > 10 years to retirement I wouldn't put anything in cash, the interest rate sucks - you should get more with an investment fund even with the management fees (dividend payments for fairly average stocks are better than cash interest rates, even before any capital growth).

I have no idea how the insurance part of the Pillar 3a works, specifically how the tax advantage works.

Edit: I think you meant "investment" not "insurance"? Although you can also do life insurance through P3a, which is the bit I don't know about.
No, in the discussion the word insurance was specifically used.

There were no inverstment profile options. It was just 1% minimum guaranteed and with good years the potential to earn more than that.
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  #332  
Old 02.11.2015, 13:36
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Re: 3rd Pillar Pension Fund

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No, in the discussion the word insurance was specifically used.
RUN AWAY as fast as you can, its a bad deal.
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  #333  
Old 02.11.2015, 13:47
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Re: 3rd Pillar Pension Fund

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RUN AWAY as fast as you can, its a bad deal.
Ok, but what are the other options? As far as I can see from this thread everything is either an insurance based policy, or a bank account, or a combination of the two. I don't think for example there is a low fee stock market tracker type fund (am I wrong?)

Would it make sense to just stick everything in the bank account, if I don't want the insurance?
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  #334  
Old 02.11.2015, 13:53
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Re: 3rd Pillar Pension Fund

I just opened a 3a with my bank... I need to get the maximum allowance of 6'768 in before 31.12.2015 to benefit from the full tax break, right?
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Old 02.11.2015, 13:55
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Re: 3rd Pillar Pension Fund

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I just opened a 3a with my bank... I need to get the maximum allowance of 6'768 in before 31.12.2015 to benefit from the full tax break, right?
Yes
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Ok, but what are the other options? As far as I can see from this thread everything is either an insurance based policy, or a bank account, or a combination of the two. I don't think for example there is a low fee stock market tracker type fund (am I wrong?)

Would it make sense to just stick everything in the bank account, if I don't want the insurance?
Loads of invested funds, however the advisor gets little commission, thats why they prefer Insurance. The commission can run into thousands, possibly tens of thousands over time. Thats why if you want your money back after 5 years you get almost nothing.
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  #336  
Old 02.11.2015, 14:04
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Re: 3rd Pillar Pension Fund

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Yes
Thanks fatty. So is it basically a no-brainer to pile the max into it every year for the forseeable future??
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Old 02.11.2015, 14:25
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Re: 3rd Pillar Pension Fund

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Thanks fatty. So is it basically a no-brainer to pile the max into it every year for the forseeable future??
It's tax deferred rather than fully tax free, you pay tax at the end. If it's invested in equities for 10+ years, & the fund doubles you would likely pay more tax 'at the end of the day'. Also the choice of investments are very conservative especially for someone who will not be retiring for 20 years.

As Switzerland has no CGT any investment gains are free of tax.

Personally I never did do any pillar 3. I did buy all my back years in a Pillar 2. Turned out to be a poor investment over 10 years. I would have had far more money after tax if I had invested it myself after tax relief / withholding tax paid on cashing it in.

Future tax law & pension rules can change, in the UK a pension that I took out in 1983 had a retirement age of 50. The law has changed & I can't touch that money till 55. Tying up money does always carry the 'unexpected' risk. For info I invested 7,100 between 1983-1989, the fund value today is 57,530.79. Over the long term equities will do well even in a poorly performing insurance company fund, which was the case for the 1st 18 years.

Edit. It does not take a genius to work out I will pay more tax on 57,530.79 than I got in tax relief of 7,100.00 Bear in mind there have been lots of stock market crashes along the way, 1st big one being October 1987.

Last edited by fatmanfilms; 02.11.2015 at 14:42.
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  #338  
Old 02.11.2015, 14:32
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Re: 3rd Pillar Pension Fund

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Thanks fatty. So is it basically a no-brainer to pile the max into it every year for the forseeable future??
Money into a cash Pillar 3a is a no-brainer of course. Because you have the immediate tax deduct-ability incentive. (assuming you don't have to pay other taxes in other countries like Americans do)

Money in a Pillar 3a account can be moved around into eligible funds / insurance products without losing it's Pillar 3 status. So there is absolutely no
rush in deciding on the type of product, take your time and compare funds / insurance products / or whatever you can invest those funds in.
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Old 02.11.2015, 14:57
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Re: 3rd Pillar Pension Fund

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Money into a cash Pillar 3a is a no-brainer of course. Because you have the immediate tax deduct-ability incentive. (assuming you don't have to pay other taxes in other countries like Americans do)

Money in a Pillar 3a account can be moved around into eligible funds / insurance products without losing it's Pillar 3 status. So there is absolutely no
rush in deciding on the type of product, take your time and compare funds / insurance products / or whatever you can invest those funds in.
No investment decision is ever a no-brainer, unless you have unlimited funds!

The tax relief is clearly a good thing, but there are other considerations:

- can you afford the investment? after all, you can't take it out easily

- would you be better putting it into Pillar 2 - particularly if your employer has some sort of contribution matching?

- are there other investments that could be better - e.g. employer share saving options?

If you're definitely investing in a pension, using 3a rather than "3b" is probably almost a no brainer.
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Old 02.11.2015, 15:47
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Re: 3rd Pillar Pension Fund

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It leads me to believe that those saddled with a US passport really can't take advantage of any tax-savings tools, unless they also work in the US tax system. Does anyone have any views/experience on this?
I can only speak for our situation - but we have found we get little tax benefit from the Swiss pension options. Like you, most of what we save on the Swiss side goes to Uncle Sam.

We live in one of the lowest tax Gemeinden in Switzerland so the way we see it there really isn't any reason to look for further tax saving options on the CH side. Rather, we concentrate on tax planning in the US.

Whether there are any benefits to a Pillar 3A for you as a US citizen is something you need to work out with a tax pro, someone qualified in both systems.

One thing to think about as you work with a tax pro: Where do you realistically see yourself in the next 5, 10, 15 years, and post-retirement? And the big question: Are you planning on keeping the blue book?

Last edited by meloncollie; 02.11.2015 at 16:27.
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