Why is a Swiss Pillar 3a account insufficient for retirement savings? ❌

Introduction to the Swiss pension system

Switzerland's pension system consists of three pillars, with the 3rd pillar being a voluntary contribution scheme. While the 1st and 2nd pillars are compulsory state and employer provisions respectively, the 3rd pillar offers individuals the opportunity to save for retirement independently.

Pillar 3a account limits

The maximum contribution allowed to a Pillar 3a account in 2021 is CHF 6,883 for people already contributing to an occupational pension plan. Pillar 3a contributions are tax-deductible, which means you can deduct the full amount of the deposit from your taxable income. However, relying solely on Pillars 1 and 2 may only represent around 60% of your final income during retirement, making Pillar 3a a similar logical choice. But is this really the case?

Investment options and returns

Banks and insurance companies offer Pillar 3a accounts offering investment opportunities with varying interest rates and returns. For example, let's take the case of John, who opens a Pillar 3a account with CHF 5,000. Depending on his appetite for risk, he may choose investment products offering higher returns but higher risk, or opt for safer options with lower returns.

The Frankly dilemma

Frankly, a company specializing in Pillar 3a accounts, was launched in 2020. If John had invested in Frankly's Extreme 95 index from April 1, 2020 to June 30, 2021, his account balance would be CHF 7,724 after fees. While Frankly may be one of the best options for Pillar 3a accounts, it is still insufficient compared to stand-alone investing.

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Take control of your retirement savings

Consider this: if John had invested his CHF 5,000 in the stock market, specifically in the S&P 500, he would have accumulated CHF 8,704 to date. This represents a return of 74.08% compared to the 54.48% growth of his Frankly account. Even renowned investor Warren Buffet recommends the S&P 500 to novice investors.

Considerations on tax liability

Although it could be argued that the reduction in tax liability is an advantage, its impact is relatively minor. The deduction amount of CHF 6,883 has a limited influence on the overall result. When one compares Pillar 3a to the American retirement vehicle known as the 401K, which allows workers to invest up to USD 19,500 on a tax-deductible basis, one wonders why the Swiss government has set the limit so relatively low.

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Making informed retirement choices

The reality is that not everyone feels comfortable managing their own investments. If you prefer a more passive approach, a Pillar 3a account is an appropriate option. However, if you have the confidence to take control of your retirement savings, explore brokerage firms that can help you invest in the stock market. BitPanda is a recommended choice, offering a range of investment opportunities. Whichever path you choose, maximize your retirement strategy to secure your financial future. 💰🏦

How Earny can help you with payroll and retirement planning

At Earny, we understand the importance of effective payroll management and long-term financial planning. Although we specialize in payroll services, our expertise extends to helping companies and individuals manage the complexities of saving for retirement. With Earny, you can streamline your payroll processes, ensuring accurate calculations and compliance with Swiss regulations. Our user-friendly platform also integrates seamlessly with retirement savings plans, enabling you to manage your finances efficiently. Let Earny simplify your payroll management and help you build a solid foundation for your retirement goals. Get started today with Earny and take control of your financial future!