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Old 30.12.2014, 18:51
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3a Funds Investment + tax benefits VS Free Investment

Good evening, fellow members,

With Jan 05th approaching, I am thinking more and more on whether the 3rd pillar with its crippled investment options really is worth the tax benefits compared to a free investment. It first came to me in this short post but believe it is worth a separate thread, so here goes based on my limited understanding to date. May very well be I'm just not fully aware of my options, so sharing my thoughts here for you to challenge and comment:

3A investment: in my case, I have two 3rd pillar accounts - one at Credit Suisse, one at UBS. Both offer maximum 50% equity fund options, both charge TER approx 1.65%. Given the mediocre performance to be expected from an actively managed fund, it basically feeds the fund managers while I personally hold the entire risk. True, it is regulated; also true, it is subject to tax benefits to the tune of 6k or so but at the end of the day, it does seem like I'm paying for the privilege of risking my entire 3rd pillar. From what I know there are only a handful of BVG funds allowed to host 3rd pillar money, all capped at 50% equity, all sharing similar gang-rape fees. And no, leaving them to the bank for a "safe" 1,25%
"guaranteed high return" is not how I imagine it...

Free investment: true believer in the power of the market, typical buy-and-hold hoarder, I find lots of joy in the limited investments to date in index funds which average TER of 0.06 - 0.15%. Risk from where I stand is similar to the BVG funds: I gamble my savings. Risk is, all can go south and it has, in the past: but has always recovered within my (projected) horizon of 20+ years.

It is obvious where this is heading: has anyone done the math of free accumulating investment VS the 3rd pillar scheme with it's tax breaks and such? Let's talk real scenario and imagine a bag of CHF 35k - your typical 5 year 3rd pillar payments - if it were put in one of them BVG funds averaging 4.5-6.5%/year after fees and if it were into any index fund out there with low TER.

Before you think I'm just convincing myself of one over the other, I am not - simply trying to learn from the collective brain and improve my savings/investment towards retirement. Thank you for sharing and happy holidays to you all

Cheers!
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Old 31.12.2014, 01:49
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Re: 3a Funds Investment + tax benefits VS Free Investment

found this comparison tool by ubs: https://apps1.ubs.com/financecalcula...I-1I0I-1I0I-1I
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Old 31.12.2014, 23:16
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Re: 3a Funds Investment + tax benefits VS Free Investment

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Seems like it will require constant return above 7% on the free investment to compensate the 3% return from the fund under 3a. Brilliant tool, and thank you for the link, I will play with different numbers and see what is the balance level to consider the pros/cons.

Cheers and Happy New Year
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