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Pillar 3a, insurance or bank solution

Updated on January 04, 2024

Pillar 3a is an important component of the Swiss pension system. It enables people living in Switzerland to put money aside for their retirement and save taxes at the same time. Pillar 3a offers a wide range of investment options and is an important supplement to the first and second pillars. But is an investment at the bank safe? The recent events at Credit Suisse and Silicon Valley Bank show that even the largest banks cannot be considered absolutely safe.

Safety:

Investing Pillar 3a funds with an insurance company is generally safer in Switzerland than with a bank, as insurance companies are strictly regulated and supervised. The Swiss Financial Market Supervisory Authority FINMA is responsible for ensuring that insurance companies meet certain capital requirements and implement risk management processes to ensure that they can meet their financial obligations to their customers. In addition, with an insurance company, Pillar 3a funds are generally protected by deposit insurance, which pays out up to the full amount per customer in the event of the company's insolvency. With a bank, on the other hand, deposit insurance in Switzerland is limited to CHF 100,000 per client, and the risk of bank failure or insolvency may be higher than with insurance. However, it is important to note that the investment decision ultimately depends on individual factors and there are no guarantees that a particular form of investment is always safe.

Transfer Pillar 3a funds from the bank to the insurance company:

A change is very easy to make, we will be happy to advise you in this regard. Basically, the existing capital can either be left at the bank or transferred completely.

Premium waiver in the event of disability:

In contrast to the bank, the Pillar 3a insurance solution offers the continuation of pension payments if the insured person is no longer able to pay the premiums due to disability. If the insured suffers a permanent disability, the insurance company will continue the agreed pension payments and take over the premium payments for the insured. This ensures that the insured person can continue to provide for his old-age pension even if he becomes disabled, without having to stop pension payments due to his financial situation.

Death insurance:

In contrast to the bank, an insurance solution can integrate a death benefit. In the event of the death of the insured, a certain sum is paid out to the surviving dependents. Death insurance can be an important protection for the family, as it provides financial support in the event of the death of the insured. Particularly if the insured has little or no other survivorship, or if the survivors are financially dependent on the insured, death insurance can provide important protection.

Tax savings:

Pillar 3a contributions can be deducted from taxable income. This means that the payments reduce the taxable income and thus lead to a tax saving. In addition, there are higher maximum amounts for self-employed persons and for persons who are not insured in the second pillar. The tax advantages of pillar 3a can be an important incentive for many Swiss residents to make provisions for their retirement.

Maximum amount:

For the year 2024, the maximum annual contribution of payments into pillar 3a in Switzerland for employees with a pension fund connection in the 2nd pillar is CHF 7,056 (for self-employed persons a maximum of 20% of the net earned income, but no more than CHF 35,280). It is important to note that the maximum amount of contributions to pillar 3a can be adjusted every year, so you should regularly check the current regulations.

Flexibility:

Bank products often offer more flexibility, as it is relatively easy to change banks and there is no obligation to make annual deposits. Insurance policies, however, are long-term contracts where the annually agreed deposit amount must actually be paid in. However, this does not necessarily have to be negative, as many people want to benefit from this "savings compulsion" and feel motivated to make regular deposits as a result.

Indirect amortization of the mortgage in pillar 3a:

Indirect amortization with pillar 3a allows pension assets to be used to finance home ownership. For this purpose, the saver pays into a pillar 3a pension plan and takes out a mortgage loan in parallel. The pension assets are used to pledge to the bank in order to repay the mortgage loan and achieve tax benefits. Pledging here means that the pension assets serve as collateral for the bank in the event that the borrower is unable to repay the mortgage loan.

Conclusion:

Investing Pillar 3a funds with an insurance company is generally safer than with a bank, as insurance companies are strictly regulated and supervised. In addition, the insurance solution offers death insurance and the continuation of pension payments in the event of disability, which is an important safeguard for the insured person and his or her family. It is also important to note that the tax advantages of pillar 3a can be an important incentive for many Swiss to provide for their retirement. Overall, the insurance solution offers a better solution for pillar 3a than a bank, which is, however, a less flexible and long-term investment.

Would you like to take out a Pillar 3a pension plan or transfer your existing Pillar 3a from the bank to an insurance solution? We will be happy to advise you without obligation.

Evgeniy Timoshenko
Partner

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Zürcher Treuhand is your trustworthy and reliable financial partner.

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Pillar 3a, insurance or bank solution

Pillar 3a is an important component of the Swiss pension system. It enables people living in Switzerland to put money aside for their retirement and save taxes at the same time. Pillar 3a offers a wide range of investment options and is an important supplement to the first and second pillars. But is an investment at the bank safe? The recent events at Credit Suisse and Silicon Valley Bank show that even the largest banks cannot be considered absolutely safe.

Maximum amount pillar 3a for 2024

Pillar 3a is the voluntary private pension plan in Switzerland that enables individuals to make additional provisions for financial security in retirement in addition to the state AHV (old-age and survivors' insurance) and the mandatory occupational pension plan (2nd pillar). An important feature of pillar 3a is the annual maximum amount that can be paid in to benefit from tax advantages.

Evgeniy Timoshenko

Do you have questions? Get in touch with me, I am happy to help.

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