What is the best third pillar in Switzerland for 2024?
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In Switzerland, contributing to your third pillar is one of the easiest 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, choosing the best third pillar for your needs may be difficult.
So, this article is here to help you! We see how to choose the best third pillar!
What makes the best third pillar?
First, we must consider what makes the best third pillar. We must decide which factors will drive the choice.
I 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 only 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 in choosing the best third pillar:
- A large allocation to stocks will increase your returns in the long term.
- A diversified stock allocation reduces the volatility of your portfolio.
- 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 will spend less than an hour every year.
- The interest on the cash part is irrelevant unless you do not want to invest.
We will now delve more into the details of 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 choose yourself your asset allocation. Recently, Swiss bonds have had negative interest rates for about ten years. When this is the case, what is not in stocks should be invested in cash.
I want to allocate as much of my third pillar to stocks as possible. I already have bonds in my second pillar, and 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 of a country to only invest in its stocks. 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, and the TER must be as low as possible. Most third-pillar accounts in Switzerland have higher than 1% TER.
When you are investing for the long term, it is essential to minimize investing fees. The difference in returns in the long term is significant.
Third Pillar from a Bank
Most people in Switzerland will invest in a third pillar their banks provide. And they have a ton of options. Historically, they have been the only option available for third pillars.
I will not go over all the possible offers here. Indeed, there are too many of them. And most of them are terrible options. But I will 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 85 V
My current bank is Migros, so I wanted to check their offer.
They have several retirement funds. The most interesting is Migros Bank Fund 85V. It has 85% in stocks and the rest in bonds and money market. The TER is 0.94% per year.
The allocation to stocks is slightly low but not too bad. The TER is not that bad for a Swiss bank. But I would not recommend this fund.
LUKB Expert Fund 75
Many people recommend the Luzerner Kantonal Bank’s LUKB funds. Let’s 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 compared 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 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 quite reasonable. 100% allocated to stocks is the best you can do in your third pillar. However, more than a 1% yearly fee is already significant. And this fund is not well globally diversified since only 28% of the stocks are international. This is significantly lower than we would like.
Raiffeisen Pension Invest Futura Equity
Since many Raiffeisen banks 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 saw was 95% in stocks, which is good. 47% is invested in Switzerland, which is not great but not the worst.
The TER of the fund is 1.42%, which is very bad. While it is not the most expensive fund in Switzerland, it is the most expensive that I will mention today. And it is way too expensive for people to consider.
Swisscanto Fund 95 Passiv VT
Swisscanto provides many Swiss funds, and many banks use them. We can examine the Swisscanto Fund 95 Passiv VT.
This fund invests 95% in stocks, which is excellent. 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 add up all the costs, this does not make them very attractive. And just because of 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. There are also some bad options.
There is no disadvantage to having your money in a third pillar from these companies instead of at a bank. They only have advantages.
There are many, but I will only mention two main providers in this article: Switzerland’s two best third pillar providers.
Finpension 3a – Best Third Pillar
Finpension 3a is the best third pillar in Switzerland.
Use the FEYKV5 code to get a fee credit of 25 CHF!
- Invest 99% in stocks
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 for an aggressive portfolio are extremely low, at 0.39% per year.
- 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 long-term returns, with a high stock allocation and low fees. This is a great way to ensure your money is well invested until retirement.
Interestingly, Finpension also runs an excellent vested benefits account. They are experienced in the pension industry and provide great products.
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. As for 2023, I am still using them and have five portfolios with them.
For more information, you can read my review of Finpension 3a.
VIAC – Good Conservative Third Pillar
In some cases, VIAC is an interesting alternative as well.
VIAC is a little more mature than Finpension 3a. They also offer an excellent third pillar. In general, they have several disadvantages over Finpension:
- Their custom strategies for investing are more limited.
- The fees are slightly higher.
However, they have some advantages for conservative investors who would not invest fully in stocks:
- They allow you to invest in cash or bonds.
- The fees are lower if you invest in stocks and cash. Indeed, you only pay fees on the invested part.
So, if you are a conservative investor (or a short-term investor) and do not want bonds, VIAC may be better. But this is only true if you do not use bonds. If you use stocks and bonds, Finpension 3a is cheaper. VIAC used to be the best third pillar until Finpension 3a came along. But it is only interesting in a few cases now. Another advantage of Finpension is that they are leading in innovation. For instance, they allow 99% of foreign exposure long before VIAC.
For more information, you can read my complete review of VIAC.
Conclusion
Finpension 3a is the best third pillar in Switzerland.
Use the FEYKV5 code to get a fee credit of 25 CHF!
- Invest 99% in stocks
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 invested in Finpension 3a instead of VIAC, and I recommend that all aggressive investors do the same. I have five portfolios with Finpension 3a.
If you open a Finpension 3a account, please use my code FEYKV5. This code will give you a fee credit of 25 CHF (if you deposit 1000 CHF in the first 12 months) and will help my blog as well.
If you need additional 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?
Recommended reading
- More articles about Best retirement accounts
- More articles about Retirement
- Finpension Vested Benefits Review 2024 – Pros & Cons
- Freya 3a Review (Discontinued) 2024 – Pros & Cons
- VIAC 3a Review 2024 – Pros & Cons
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Dear Baptiste,
thank you for this interesting review of Finpension 3a pillar.
I would like to open an account with a strategy global 100, but surfing the net I found out another interesting strategy, that allow you to choose 99% global equity (without CH) with potential higher return in the long term:
CSIF (CH) III Equity World ex CH Quality – Pension Fund DB
Isin: CH0253609066
Would you recomend it?
Is there any hidden fee or should I expect to pay just 0.39% Finepension custody?
Thank you
Hi Nicola
I think the Quality fund is quite good. It had good historical returns. But then you will lose in diversification. So, it is up to you :)
There are no hidden fees other than the usual buy/sell fees that are on most CS funds.
Thank you for answering, yeah I was impressed by the past returns :-)
Hello, thank you for the article.
Isn t Finpension a fund of fund as well??
If so, wouldn t there be fees on top of fees being applied as well then? What is the perfomance impact?
Hi H,
It’s not a fund of fund. They are using multiple funds in their portfolio (each one a single real fund) and their fees apply but are already taken into account :)
Hi Baptiste,
Many thanks for all the good work you’re doing.
What do you think about having more than one third pillar account? Do you think it can save money on taxes when the money is withdrawn?
All the best,
Gio
Hi Gio,
You should definitely aim at more than one third pillar. THe ideal number is 5. This will help you save taxes with staggered withdrawals in 2024.
First of all, thanks for your blog. :)
I would like to move my 2 third pillars from my bank (T.E.R 1.2%!!!) to finpension or viac . My question is whether makes sense to do it all at once knowing the stocks are all quite high . what would be the right way to transition them out?
Thanks so much
Hi Sandra
It depends on how long you have in front of you. If you have a long-term investment, just move now and forget about current valuations. We don’t know whether we are close to the top or not. You can also think of it as a transfer. You already have stocks and are buying more or less the same stocks but at a different price.
If you do not have long, what matters is getting out of your TER into something cheap.