It depends. Long term yes, stocks make sense. But as I just explained above, tax play alone on pillar 3 can get you as much as 7% guaranteed returns, but you should be prepared to withdraw the money regularly then and the risk of stocks going now in the short term can hurt this scheme.

I have been looking at Pillar 3a fonds as well for a while. I found nothing better than the two indexfonds from Postfinance and Raiffeisen that you found as well.
Another option is Liberty Invest, where you pay 0.4% for the depot and you can freely invest in different Fonds. For example a passive ETF with 50% in stocks with a TER of 0,35%, which makes 0,75% alltogether.

To the discussion.. I am relativley new to Switzerland and investing. I thought Pillar 3a passive ETF would be a good thing, but you make it sound like a bad idea?
For example if i invest about 7000 CHF per year for the next 30 years and i get abouter 2000 CHF of that money back from taxes, then I would have (when i get 4% return which is not really unrealistic imo) 415.000 CHF in the end.If I only invested 5000 CHF and no tax benefits in something similar I would end up with around 303.000 CHF. Sure there is a tax in the end, but it cant be as much as 112.000 CHF?
Or am i getting something wrong?
The TER in those ETF Pillar 3a are around 0.7-1 % which is not much worse than other ETF and Depot costs in switzerland, so this should not make much of a difference.
Any opinion on that? did I miss something?

- You can invest the 5000 more aggressively in 100% equities.
- At the moment for Zurich the payout tax for 400k is ~38k and for 4x100k ~20k
- You can only cash-in (except for house financing) one pillar 3a depot/account as whole and not a part. All depots/accounts cashed-in in one year are added up for tax calculation.
- This is the current tax regime which can be completely different in 20 or 30 years.

Yes it's a better "strategy" to accumulate e.g. 4 x 50k CHF 3a pillars than 1 x 200k CHF, because of tax ramp-up.
And then withdraw one per year when the time comes (if you are looking for retirement/housing).

For 50k the tax rate in Basel city (example) is around 3.5%, which you would need to take into account on your total returns over N years of accumulated investment.

Source: http://www.pens-expert.ch/en/pens3a/...ithdrawals.php



My idea anyway is to make more serious investments outside of the 3rd pillar.
But in the meantime I want to put the amount already there to work instead of just leaving it in the savings account.
And the yearly ~1500CHF (or more depending on your tax level) is not that bad of a return either - at the price of locking the rest away and having to accept the higher TER.

It's not particularly terrible idea. Disadvantage is that due to the highly restrictive selection of pillar 3a funds, they can charge you high management costs and get away with it - there are simply too few competing providers on pillar 3a market. You can much more efficiently invest 6700 CHF on the free market than within pillar 3a system.

But anyway, my main point is - the *main* benefit of pillar 3a is just in the tax savings, not fund performance. Even if you keep it all uninvested as a cash only interest-free account, you still enjoy the tax savings and they are more substantial than fund performance if you keep money in it for a short term, like for 5 years minimum term between withdrawals.

If you keep the money in for a long term, the fund performance and high management costs will kill your tax savings.

I've taken into account what the others are saying and did a quick calculation.

Basically the compounding effect of the additional fee charged by the funds (0.75% in this example but they tend to be much higher) that are available within 3a Pillar account will eat away any tax benefits you might make. So in the end you end up paying more to the fund + the fact that you have to pay tax on the money when you take it out.

So the ultimate question is, do you want to pay the money to the tax man or the fund manager. (ignoring the fact you have to pay tax when you take money out).

See attachment for more info. I am happy to add extra details there if it helps anyone.

Attached Thumbnails

 

There's a very simple formula to assess how much you're being ripped off

1 - (1 - 0.75/100)^40 = 26% -- this is how much of your wealth will go to the banksters over the course of 40 years, if they "only" charge 0.75% TER.

I am not sure I understand the point of the graph:

1) It goes to show that the accumulated management fee / TER (of 0.75% in this case, PostFinance is more around 0.9%) reduces the total profit == obvious.
That is the case with any investment fund, regardless of 3rd pillar; except that TER is usually much smaller than that.
Range 0.2-0.4 to be expected, but then add the transaction fees etc., which are free in 3rd pillar options.

2) Now do the same calculation with 1% you gain with a regular 3rd pillar savings account. What yields more - 5%-0.75% annually, or 1% annually?


See 1)
Show me an ETF with 0% TER.

But index fonds always have a price. Okay you would be paying around 0.5% more a year than with an index fond outside of switzerland, but those would be without tax benefits.
And for many brokers you would have to convert francs to other currencies which is not free either.
And if you think about investing for the long time and dont want to take too much risks you need to have a certain amount invested in other things than stocks. So if i have 50 % of bonds or similar in my 3a and dont pay tax for the gains at first, and invest most of my money somewhere else in mainly stocks it might not be a bad idea?

This is exactly the point, I put 0.75% as the excess management fee typically charged by the funds in 3a Pillar accounts.

So if you want to invest in funds / ETFs or whatever, right now it doesn't make any sense if your time horizon is 30 years. Because what you save in tax by putting money into these accounts you will lose through the additional amount of fee charged by these accounts compared to regular funds outside 3a Pillar. Additionally you have to pay tax on the money when you take it out, while you don't have to do that outside of a 3a Pillar account.

You're not comparing apples to apples here, you should compare cash inside 3a Pillar account and cash outside 3a Pillar account. You will find that the 3a Pillar account has a better interest rate than a regular savings account.

Another point to consider is of course the wealth tax. You don't have to pay wealth tax in 3a Pillar accounts. However this is negligible.

I am not against 3a Pillar account I have a couple of them myself and intend to open another one next year. I will probably end up using them for property purchase or put them into an index fund with a low TER (below 0.5%) when things dip in the future. Just be aware that they're not all what they are cracked up to be that's all.

My apologies, haven't read thoroughly and missed the "excess" part.

Agreed.
However as my future is not clear yet whether I stay in CH or leave within 2-5-10 years, I am thinking more short-mid term with this.
I will make my more serious investments outside of 3rd pillar.

You are right.
My dilemma was just whether to let what I already have inside sit in the savings account (guaranteed 1% return), or invest into funds.

Points taken, thanks.

http://etfdb.com/compare/lowest-expense-ratio/

How does SCHB's 0.03% sound to you? Which means you'd pay 1.2% over 40 years to the banks, rather than 26% inside pillar 3a. A rather big difference, don't you think?

There are also studies that show that if you just buy randomly a large enough number of stocks, the performance is usually just as good as any fancy schmancy index fund. And you don't have to pay any management expenses, just trading fees.

Yeh this was also my dilemma when my account manager rang me up and asked me to come for a coffee!

Ended up suggesting some own banks funds that seemed ok on the surface but had 1.5% yearly fee. I haven't heard from him since as I told him I'm not interested in these funds.

The banks strategy is too hook you in with the tax advantage then try and cross sell you their own funds. They can make more money from you this way, although I'm not sure if they can make similar amounts from the cash part (if they are allowed to lend it out).

If you could one day buy ETFs etc with the 3a Pillar that would be great. Some of the ETFs you only pay sub 0.1% TER so a great passive product.

Same with me, that's why I started looking for other banks with lower 3a pillar fund TERs (since I am already locked in for that part of my earnings).

Thanks for sharing this.
Happy to learn more and more about all of this, just starting on my route...

IMHO it's not worth to spend much effort on this. All pillar 3a funds are rather mediocre. I personally consider it a done deal with pillar 3a as soon as I paid the money in for current year and pocketed my tax saving. Then it's better to focus on getting the money out, i.e. buying a suitable property. And/or think about how you're going to invest the rest of your money for maximum returns.

There's no sign of another financial crisis on the horizon, so I also buy cheapest passive pillar 3a fund my bank has to offer (I'm bound to my bank with a mortgage for this), but this isn't a must for me - I'd be equally happy to leave it all cash at 0% interest knowing that in 5 years I can take it all and still get 7+% return thanks to tax savings alone.

Famouse Last Words!

I see big problems coming, but I'm a Perma-Bear so always seeing problems on the horizon!

There's a certain amount of risk no matter what you do. Even if you keep it as cash - see what happened to GBP after brexit. Best is to diversify your investments.

According to this Tariff document, married couple income with 150000gross yearly income (12500CHF monthly) with Church tax an no kinder should pay 12.84% withholding tax. So how did you calculate 30%? What am I missing?

You're missing multiple things: 1) this is not the total tax rate, but the marginal tax rate (i.e. derivative of taxes w.r.t. taxable income), 2) taxable income is netto, not gross - after all applicable deductions, 3) for a single unmarried person with no church tax, 4) this is for definitive taxes, not tax at source

I am sorry but what do you mean by marginal tax rate?