What is the best third pillar in Switzerland for 2021?

Mr. The Poor Swiss | Updated: | Investing, Retirement
What is the best third pillar in Switzerland for 2021?

(Disclosure: Some of the links below may be affiliate links)

In Switzerland, contributing to your third pillar is one of the best ways to save on taxes. I recommend everybody to contribute to their third pillar.

But contributing to your third pillar is not enough. You should invest the money in your third pillar. That means you have to pick the best third pillar for your money. Since there are many options, it may be difficult to choose the best third pillar for your needs.

So, this article is here to help you! We will see how to choose the best third pillar!

What makes the best third pillar?

First of all, we have to think about what makes the best third pillar. It is essential to decide which factors will drive the choice.

I am going to assume you already know about the third pillar and are contributing to it. If you do not, you should learn why you should contribute to the third pillar.

We are only going to consider bank third pillars, not insurance third pillars. Indeed, in almost every case, a bank third pillar is much better than an insurance third pillar.

The goal of your third pillar is to provide you with enough money to retire comfortably. Therefore, you want your invested money to grow as much as possible while not taking too much risk. So, the best third pillar must support this goal!

There are three critical factors to choose the best third pillar:

  1. A large allocation to stocks to increase your returns in the long-term.
  2. A diversified stock allocation to reduce the volatility of your portfolio.
  3. Low management fees to avoid wasting your returns in fees.

Since we are counting on the long-term, there are also some things we can ignore:

  • How good the app looks does not matter. You are going to spend less than an hour every year.
  • The interest on the cash part is irrelevant unless you do not want to invest.

Let’s delve more into details in the three critical factors.

Allocation to stocks

The best third pillar has a significant allocation to stocks.

It will depend on your situation, of course. You need to decide for yourself the allocation to stocks that you need. Moreover, Swiss bonds are in the negative territory now. Therefore, what is not invested in cash should be invested in cash.

For me, I want as much as possible of my third pillar into stocks. I already have bonds in my second pillar. My current allocation to bonds is more than enough. Ideally, a third pillar will have a 100% allocation to stocks.

Diversification

The best third pillar has a diversified stock allocation.

Switzerland is too small a country to only invest in it. We need to have global stocks (stocks outside of Switzerland). Ideally, the allocation should be the same as a world stocks fund. Since the Swiss stock market represents about 3% of the entire stock market, we should avoid investing much more than that.

Unfortunately, this is not possible in Switzerland. The law states that the third pillar must have at least 40% allocated to Swiss stocks. So an ideal third pillar should have 60% of international stocks and 40% of high-quality Swiss shares.

As we will see later, there is a way against this limit, making some third pillar providers significantly better than others.

Fees

And last but not least, the best third pillar has fees as low as possible.

I want my third pillar to have zero load fees. I do not want to pay to get money inside the fund. The absence of load fees is essential. You should never use any fund with load fees.

Moreover, the yearly fees must be low as well. The TER must be as little as possible. Most third pillar accounts in Switzerland have high TER, higher than 1%.

When you are investing for the long-term, it is essential to minimize investing fees. The difference in returns in the long-term is really significant.

Third Pillar from a Bank

Most people in Switzerland will invest in a third pillar provided by their banks. And they have a ton of options. Historically, they have been the only option available for third pillars.

I am not going to go over all the possible offers here. Indeed, there are too many of them. And most of them are terrible options. But I am going to go over some interesting options from some popular Swiss banks.

We will use the third pillar accounts from banks as examples. These are not the best third pillars.

Migros Bank Fund 45 V

My current bank is Migros, so I wanted to check their offer. And to be honest, it is quite disappointing.

They only have three retirement funds for their third pillar offer. The most interesting fund is the Migros Bank Fund 45 V. It has 45% in stocks, 40% in bonds, and the rest in cash. The TER is 0.89% per year.

This fund is not a great offer. The allocation of only 45% to stocks is too low. And the fact that they have a large allocation to bonds does not help. Cash would be better. The TER is actually not that bad for a Swiss bank. But I would not recommend this fund.

LUKB Expert Fund 75

Many people are recommending the LUKB funds from the Luzerner Kantonal Bank. So, we can take a look at their LUKB Expert Fund 75.

This fund has 75% of stocks, which is alright, but not great. 40% is invested in Swiss stocks, 35% in global stocks, 15% in Swiss bonds, 4% in international bonds, and the rest in liquidities and real estate. The diversification is not too bad when comparing with other options.

It has a TER of 0.8%. For third pillar accounts in Switzerland, this is a good TER. However, it has a load fee of 0.4%. The TER is okay, but the load fee makes it highly undesirable.

PostFinance Pension 100

Many people are using the retirement funds from PostFinance. So, we can take a look at the PostFinance Pension 100 fund.

This fund invests 100% in stocks. 72% is invested in Swiss companies while 28% is invited globally. And the TER is 1.01% per year.

The allocation to stocks of this fund is actually quite good. 100% allocated to stocks is the best you can do in your third pillar. However, more than 1% fee per year is already a significant fee. And this fund is not well globally diversified since only 28% of the stocks are international stocks. This is significantly lower than we would like.

Raiffeisen Pension Invest Futura Equity

Since there are many Raiffeisen banks and they have a good reputation, it is a good idea to look at their retirement funds, and more specifically, the Pension Invest Futura Equity fund, a mouthful.

This fund has between 80% and 100% in stocks. I do not know why it is not fixed. But the last invested value I have seen was 95% in stocks, which is really good. 47% is invested in Switzerland, which is not great but not the worst either.

The TER of the fund is 1.42%, which is very bad. While it is not the most expensive fund in Switzerland, it is definitely the most expensive that I am going to mention today. And it is way too expensive for people to consider.

Swisscanto Fund 95 Passiv VT

Swisscanto is the provider of many funds in Switzerland, and many banks are using their funds. We can take a look at the Swisscanto Fund 95 Passiv VT.

This fund invests 95% in stocks, which is great. The diversification is also good, with 65% invested in foreign equities. However, they hedge most of the equities, with 72% in CHF for the entire fund. This is not great for currency diversification.

On the fee side, this is an excellent example of how banks are trying to make it complicated for people to know how expensive it is. The flat fee for the fund is only 0.38% per year. At first sight, it sounds great. But if you look in detail, we can see that this is a fund of other funds, so there is an extra 0.33% in fees for the sub-funds. But they never show the full fee of 0.71%. On top of that, they are adding a 0.1% issuance fee and a 0.09% redemption.

It is the most complicated fee system I have seen during my research. They use several small fees not to scare customers away. But when you put all the fees together, this does not make them very attractive. And just for this lack of transparency, I would not invest in their funds.

Independent providers

As we saw, offers from banks are not that great. Fortunately, recently, many independent providers have started in this market. And they are offering much better conditions than banks.

We have seen that banks have high fees, sub-par diversification, and not aggressive enough portfolios. Independent providers are fixing all these issues. So, to find the best third pillar, we need to look at these independent providers. Note that they are not all good, they are also some bad options out there.

There is no disadvantage at having your money in a third pillar from these companies instead of doing it at a bank. In fact, they only have advantages.

There are many of them, but I am only going to mention two main providers in this article: Switzerland’s two best third pillar providers.

Finpension 3a – Best Third Pillar

Best Third Pillar!
Finpension 3a

Finpension 3a is the best third pillar in Switzerland.

Use the FEYKV5 code to get a chance to win 6883 CHF in your third pillar*!

*(if you deposit 1000 CHF in the first 12 months)

For most long-term investors, Finpension 3a will be the best third pillar available in Switzerland.

Indeed, they have some powerful advantages going for them:

  • You can invest up to 99% in stocks
  • The fees are extremely low, at 0.44% per year for an aggressive portfolio.
  • They have a mobile application and a web application.
  • You can make custom portfolios with a lot of liberty.

Finpension 3a is the best third pillar for your long-term returns, with a high allocation to stocks and very low fees. This is a great way to ensure that your money is well invested until you retire.

Interestingly, Finpension is also running an excellent vested benefits account. They are experienced in the pension industry and are providing great products.

I strongly believe Finpension 3a is the best third pillar available for aggressive long-term investors. So, in 2021, I started investing my third pillar in Finpension 3a.

For more information, you can read my review of Finpension 3a.

VIAC – Best Conservative Third Pillar

If you do not want to invest heavily in stocks, VIAC will be a better option than Finpension 3a.

VIAC is a little more mature than Finpension 3a. They also offer an excellent third pillar. In general, they have several disadvantages over Finpension:

  • You can only invest 97% in stocks instead of 99%.
  • The fees are higher (0.50%).
  • Their custom strategies for investing are more limited.

However, they have some advantages for conservative that would not invest fully in stocks:

  • They invest in cash and not in bonds. And since bonds are currently in negative territory, having cash may be better.
  • The fees are lower if you do not invest 100% in stocks. Indeed, you only pay fees on the invested part.

Therefore, for an investor with a lower allocation to stocks, the fees will be significantly lower, and the returns will be potentially better.

So, I would recommend VIAC over Finpension 3a only if you were to invest 80% or less in stocks. It is still an excellent third pillar. But if you want the best third pillar for your money, you will have to change. VIAC used to be the best third pillar until Finpension 3a came along.

For more information, you can read my complete review of VIAC.

Conclusion

Best Third Pillar!
Finpension 3a

Finpension 3a is the best third pillar in Switzerland.

Use the FEYKV5 code to get a chance to win 6883 CHF in your third pillar*!

*(if you deposit 1000 CHF in the first 12 months)

Overall, the best third pillar available in Switzerland is Finpension 3a. They offer the highest allocation to stocks and the lowest fees. On top of that, you can create custom portfolios with a high degree of liberty. This makes them an excellent option!

For these reasons, in 2021, I have invested in Finpension 3a instead of investing in VIAC. And I recommend all aggressive investors to do the same.

Now, there is one case where VIAC is better than Finpension. If you do not want to invest the maximum in stocks, you can get better results at VIAC. This makes VIAC the best third pillar for conservative investors.

If you open a Finpension 3a account, please use my code FEYKV5, this will give you a chance to win 6883 CHF!

If you need more information on these two third pillars, I have an article on VIAC vs Finpension. This article goes more in-depth into the comparison.

What about you? Which is your favorite third pillar?

Mr. The Poor Swiss is the author behind thepoorswiss.com. In 2017, he realized that he was falling into the trap of lifestyle inflation. He decided to cut on his expenses and increase his income. This blog is relating his story and findings. In 2019, he is saving more than 50% of his income. He made it a goal to reach Financial Independence. You can send Mr. The Poor Swiss a message here.

55 thoughts on “What is the best third pillar in Switzerland for 2021?”

  1. Hi!

    Thanks for a great article! I have a couple of questions related to the case when people move out of Switzerland.
    1. Is one able to still pay into a Finpension or VIAC account if living abroad? If I’m not mistaken, it is possible to continue paying in the SwissLife account, I don’t know if it is their own perk, or is this common across the board.
    2. If not, is it mandatory to cash out immediately when moving?
    3. Is there a chance to stretch the withdrawals while living abroad?

    Thank you!

    1. Hi,

      1) No. You can only contribute to the third pillar if you have a salary in Switzerland.
      2) No, it’s not mandatory. But it may depend on where you are going and whether this country has a social security treaty with Switzerland or not.
      3) I don’t know. I would think no, but it may depend on each country. I would recommend contacting your third pillar provider or tax office for that kind of question.

  2. Putting all of your 3rd pillar into stocks/etfs may be tax inefficient in terms of your overall portfolio allocation and total return in the long term.

    See this article (DE only, easy to translate and graphs should work as non native speaker) for a breakdown of the reasoning: https://www.graffenried.ch/de/ueber-uns/publikationen/?oid=10225&lang=de&news_eintragId=20041

    In summary their argument is the following:

    1. You do get a yearly tax benefit from investing in the 3a pillar. This tax benefit cumulates over the years and is one contributor to your positive return in 3a pillars.

    2. You can choose between different investment vehicles for your 3a pillar from cash accounts to etf/stock offerings like the ones discussed in your article.

    3. When your funds from your 3a pillars are distributed/drawn during or shortly before retirement, you will have to pay full capital gains tax as they are counted as income on payout. This is often overlooked and means that also for etfs and stocks where you usually do not pay capital gains tax you will have to do so in your 3a pillar on payout. While this can be mitigated somewhat by streching the withdrawal over 5 years it still may be significant, especially with a 100% stock portfolio that did well in the market.

    4. The capital gains tax on your stock/etf returns in your 3a pillar may lead to a situation where you pay so much taxes that the cumulative tax savings gained that I mentioned in 1. is entirely eliminated and you would have been better off to just invest your money without 3a in the same etfs (avoiding the capital gains tax on selling/drawing) in the free 3b pillar.

    My general recommendation therefore is to view the 3a pillar as an overall part of your portfolio and asset allocation. If you save a lot besides your 3a it is imho generally more tax efficient to go with the higher risk/return assets outside of the 3a and do a more conservative cash or small stock allocation in the 3a, so that you take full advantage of your cummilative tax savings and do not wipe them out via capital gains taxes.

    I was not aware of this for a long time and wanted it to bring to your and your readers attention.

    1. Hi Stephan,

      It’s true that you will pay taxes on the entire amount, including the capital gains. However, it’s not true that this is taxed as income. This is taxed at a special progressive rate based on the amount. So, you are not taxed as income. Otherwise, everything would be entirely negated and it would not make any point. But maybe that’s what you wanted to say.

      We also have to keep in mind that (as they mention), the example they use is absolutely extreme. Almost nobody will ever reach those amounts.
      Second, it ignores the fact that stretching the withdrawals over five years makes a very significant difference. You can easily divide your taxes by two. In their case, that would have made a significant difference.
      Third, their example checks out but is contrived to a single example with a single marginal tax rate. For a higher marginal tax rate, the difference would be more interesting. And for a significantly lower marginal tax rate, the difference would be less interesting.
      Finally, it ignores the fact that you can invest the tax savings bringing you even more capital gains on the 88K that are being saved.
      Also it ignores the fact that most people don’t invest their money either in the third pillar or in their portfolio :(

      So, yes, there are some cases where the the third pillar would not be very interesting. But using a single example is not very representative.

      1. Hey TPS

        Thanks for pointing out that it is indeed a special tax rate (in most cantons lower than income tax). The key point is that it is taxed, while it would be not taxed if invested in a 3b pillar (free investment).

        I agree with all points you make – an individual assessment is necessary and investors should do a back of the napkin calculation for their individual situations (maybe something for a dedicated post @ TPS running some of your simulations).

        You can find some more extensive examples at https://www.truewealth.ch/de/blog/saeule-3a-achtung-vor-der-steuerfalle but still not representative for most usecases. They link some useful calculators to get to your individual ‚break even‘ threshold.

        I still would recommend using the 3rd pillar as a cash/bond part of your overall asset allocation and keeping your stock/etf portfolio seperate in 3b (free investment), especially for larger portfolios that everyone striving for FI is acummulating along the way. A middle of the road approach is to choose a reduced stock-% in the 3a pillar to stay below the individual threshold that negates your tax efficiency (including all the factors mentioned in our previous posts the individual thresholds may vary heavily).

        In any case I think swiss FI investors should be made aware of this potential tax-trap of 100% stock/etf 3a pillars and check their individual situation to make an informed decision on how to allocate their assets.

  3. Dumb question – what do you think about the UBS 3rd pillar options. I thought UBS don’t charge fee’s on their 3rd pillar accounts (or at least that’s what I thought), and they also offer a different mixes of stocks.

    1. They may not charge direct fees, but I am pretty sure that the fees of the funds themselves are not waived and these fees are high. I would be extremely surprised if UBS did not charge anything on their retirement funds. That is just not how they work.

  4. Hi!
    Thanks for this great post! Why do you think the insurance do not make sense? Some also offer 100% fund investment with similar performance and fees (ex: 0.48% for SwissLife).
    Best
    MW

    1. Hi MrWave,

      The problem of third pillar insurance is that you will lose some part of your investments for the life insurance premiums. And these costs are quite significantl. So, if you do not need a life insurance, you will lose money for nothing.
      Also, if you need life insurance, you would be better off with proper life insurance and a separated third pillar because life insurances outside of third pillar have better conditions than those linked to third pillar.

    1. Hi Fra,

      Generally, Swiss Life third pillar are extremely expensive. But they have many products and I do not know them all.
      If you are interested in one in particular, let me know and I’ll check it out.

      1. Hi,

        They boast 0.48% in fees for their Swiss Life Dynamic Elements Portfolio Global Equity offer. What do you think about that?

        1. The fund itself looks good and indeed comparable to VIAC and Finpension when we only consider the fund.
          The problem is that some part of your money will not be invested in the fund. In most cases, 10% to 20% of your contribution to the second pillar insurance will go into the insurance to pay the premiums and not into the funds. So, this is a direct loss of 10% to 20%. This is the main problem with life insurance third pillar, not the choice of funds.

  5. Hi!

    First of all, I want to say a huge thank you for all the info you keep providing!

    I have started investing using Selma (thanks to you) and now I am thinking of opening 2 new 3a pillar accounts (I already have one in a regular bank and an insurance one).

    Based on your articles, Finpension and VIAC seem to be the obvious choices (the idea is to open both accounts at the same time and see how they perform – I like the idea of an experiment!).

    I read your article about Selma and it seems more expensive than both Finpension and VIAC … Would you suggest opening a 3a with Selma instead? Are fees still double compared to Finpension and VIAC? I wonder if Selma will decrease its fees at some point as well …

    PS: I have about 20 years to go before retirement.

    Thank you!

    1. Hi Cris,

      Selma 3a is indeed more expensive than Finpension 3a and VIAC. Currently, I think it’s too expensive, even if you already have a Selma account. It’s good that everything is integrated, but it could become cheaper.
      I would suggest going with Finpension or VIAC for now. If Selma 3a decreases its fees in the future, you are always free to switch.

  6. Hi!
    Great content as usual.
    I’ve just found out that as stated here:
    https://www.ubs.com/ch/en/help/pension/pillar3a-withholding-tax.html?fbclid=IwAR0qjw5s_9-drzuQptNEAFUtD_FeNZ5ccBt5Ec_qVGnMvPAni1gNM8T09XU

    Beginning in 2021, it will no longer be possible to file requests for withholding tax adjustments on account of additional deductions (e.g. pillar 2 buy-ins, pillar 3a contributions or debt interest). 2020 is the last tax year for which a withholding tax adjustment can be requested. For this reason, you should check with your tax advisor whether it still makes financial sense to pay into a pillar 3a account starting in 2021.

    Do you think it still makes sense to open a 3a account?

    1. Hi manuel,

      This change is only for people that pay tax at source (foreigners). If you cannot get a tax deduction, the third pillar does not make sense now.
      Now, you can actually ask your state to do an ordinary tax declaration. But in that case, you will have to file a full tax declaration instead and your taxes may change (for better or worse). I am not sure it makes sense.
      For most tax at source people that do not fill an ordinary tax declaration (people with less than 120’000 income), then I would think it does not make sense anymore to invest in the third pillar.

      1. Thank you for you reply Mr. The Poor Swiss.
        If I understand correctly also for people that earns more than 120000 CHF that pays tax at source it doesn’t make sense anymore cause it would not be possible to file requests for withholding tax adjustments regarding pillar 3a contributions

        1. In most cantons, if you pay more than 120K, you should switch to a full tax declaration. Hence the number. I think Geneva and maybe Zurich have a higher limit.
          Basically, the third pillar only makes sense if you can claim the deduction.

    2. If I understand it correctly, you will just have to request to fill out a proper tax declaration. You can still enter all the adjustments (including Pillar 3a) there.

  7. Hi! regrding the integration to the retirement, do you think is more convenient to contribute to a 3rd pillar or to invest in etf with my own accumulation plan? becouse i saw that there are some tax benefits with the 3rd pillar, but i saw also that in the most of the cases the interests are very low.

    thank yoy very much

      1. hi! thank you for your suggestion…but do you think it would be a good idea contributing to the third pillar instead of an indipendend investiment in etf even if im not sure i will stay in Switzerland until retirement age?
        thank you very much

        1. It depends on many factors. If you know you are going to leave soon, then, it does not make sense.
          But if you leave in the distant future and you have a large income, then it could still make sense yes.
          Keep in mind that if you want to cash in your third pillar you will have to sell the stocks, which may happen at a bad time, so once again, time horizon matters.

          1. hi! thak you very much for your help, i’m still not sure what is best for my situation. I would like to ask you if the figure of an independent financial advisor exists here in Switzerland and if maybe you can recommend one to me. Thank you very much anyway

Leave a Reply

Your comment may not appear instantly since it has to go through moderation. Your email address will not be published. Required fields are marked *