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*!
*(if you deposit 1000 CHF in the first 12 months)
- 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.
- You are limited in your maximum foreign currency exposure.
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.
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*!
*(if you deposit 1000 CHF in the first 12 months)
- 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 will help the blog and give you a 25 CHF fee credit (if you deposit 1000 CHF in the first 12 months).
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?
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Hi
I was reading this and I have some doubts regarding the strategy to follow.
I’m an expat and I don’t see myself more than 5 years from now in the country. I was doubting between a riskier approach (index funds) and a more conservative one based on my future relocation. I read in the comments that you can leave the coutnry and still retain your funds. If so, once you leave the country can you retire them whenever you want? Or is it a situation where you can do it either when you leave or at retirement?
I know I want to complement this with an investment in a MSCI World like fund in CHF that I plan on not retrieving any time soon (even if I’m already out of Switzerland). I still need to read what platform is the best, as from what I see, finnpension does not have yet that product.
Thanks for answering
Hi Pablo
It depends on where you are leaving to. Either you withdraw your funds (second/third) when you leave Switzerland or later when you retire abroad.
I would say it depends on how much taxes you are paying now and how sure you are that you will leave. If you know you will leave in the next 5 years, it’s probably simpler to not bother with your third pillar.
Finpension Invest should be coming relatively soon. But if you know that you will leave the country, it’s probably not a good idea. I would stick with something international like IB.
What do you think about the products offered by SwissLive?
Generally, Swiss Life products are expensive and opaque.
Stay away like pest! I’m one unhappy cheated customer of the
Dear Baptiste , what was your return with finpension in the last years and which strategy did u use?
Thank u.
Hi
I am currently using a single fund in each of my strategies with World Ex CH quality. I don’t necessarily recommend this for everybody, this is something I am trying out.
But in the past, I have used different strategies, so this may have impacted my returns.
Here the current returns.
* My oldest portfolio has currently 15.1% since January 2021.
* Another is 10.3% from 09.21
* Then 13.7% since 10.21
* Then -1.0% since 01.22
* Then 12% since 01.23
Hi Baptiste
could you please post some exact values for the last 2 years (22.2.2022 – 22.2.2024)?
As I wrote before the frankly Extreme 95 Responsible pillar 3a has had a return of 2.2 % in this time, which is not good at all, the MSCI World (SWDA) has had a return of about 12.4% in CHF, and about 17.5% in USD
Regards
Thomas
Hi
One portfolio did 9.28% in the period (26.02.22/24.02.22) (your exact dates were not in the chart)
One portfolio did 20.66% in the same period
Another did 10.29%
Thank you. It is probably like you wrote elswhere that frankly is losing too much with their hedging of the Swiss Franc. I think I should also transfer my money to finpension …
I understand that is not part of the analysis but i’ve been with FinPension for a while now with a high risk investment portfolio.
Their investment strategies- which can’t be much influenced- are very poor.
My portfolio was down 8% and only now is back to ‘still’ -2%, when the market has been very positive for the last 2 years or so.
What is the advantage of low fees and high stock investment if you have very poor choices of stocks and you loose part of your investment?!
Could you share exactly when you started investing and what is the portfolio you are using? Without, it’s impossible to understand why is your portfolio down.
My portfolios have returned quite well since I have started them. I am quite happy about the returns I got.
Also, you are saying you can’t influence the strategies, but this is wrong because Finpension is the 3a with the highest amount of customization. You can create custom strategies with very few limits.
As a comparison, one of my accounts: frankly Extreme 95 ‘responsible’:
22.2.2022: 51174 = 100 %
12.10.2022: 43215 = 84.4 % = – 15.6 %
22.2.2024: 52’300 = 102.2 % = +2.2 %
Sounds similar to mine. It went down to -15% and now is still -2.2.
The market has been very positive the last two years? On which planet? Right after the start of the war in Ukraine everything went down. I had a private portfolio which has pretty much been in the negative for two straight years and only in the last three months it’s recovered…
Also the risk of a high risk solution is that besides a very steep increase it can also go very wrong. That’s why it’s HIGH RISK. Choose a more moderate solution, the increase will be less steep but more likely in the positive or without massive loss.
You are right- maybe not the last 2 years but the last 1-1.5 years. Look at S&P 500 and other stocks representing the market. It is true that I mainly consider US stocks.
well, exactly what time frame are you comparing with your numbers above? It always depends on the exact time you took your investments. Two years, while continually buying, is not a long time frame to judge development. And again, you’re choosing high risk. That means you accept a potential high loss because you want a chance at a high gain.
Hi PS,
What would your opinion be on the UBSVita – W100SI 3a.
As an expat I felt more comfortable keeping my 3a at a large bank. This is also where my regular bank account is so everything was in one place.
Do you think it would be worthwhile to open up a second 3a at Finpension?
Many thanks
Hi Ben
UBS private funds are decent but I could not find the one you are mentioning.
The problem is more the custody fees of the 3a account. Just double check it.
You will likely pay about twice more in fees than you would at Finpension 3a.
But then, if it makes you feel better, it’s better than not investing your 3a.
Hi Ben
I am also an expat and went through the same thought process regarding a 3a at UBS.
I switched to Finpension for 2 reasons:
1. fees at UBS are crazy high
2. As an expat, depending on your personal situation, you might want to leave Switzerland before you retire. In this case UBS forces you to dissolve you 3a account and cash out the money. If you leave Switzerland at a time where the market is down, you will have to materialize losses. At Finpension I was told I could leave my money invested until age of retirement.
Hope this helps.
Regards
Pablo
Thanks. That is very valuable input.
Hi Pablo!
I am an expat as well and I am just starting to invest in 3a. How did you find out about the UBS fees? I can’t seem do find it mentioned anywhere. Also, is it possible to switch from UBS to a different platform or are there any caveats to this?
Lastly, am I correct in understanding that with Finnpension I can keep investing even after leaving Switzerland and then pull out my funds anytime I want?
Would be extremely helpful if you can answer please.
I can’t answer for Pablo on the first part, but let me answer the other questions. s
You can always switch 3a from one platform to another. Sometimes, there is a fee for that, but not often.
With Finpension (and most 3a), you can keep it while you are abroad until you are of retirement age. Conditions may differ based on each country.
Does it make sense to use two different providers? I’ve 5 portfolios with viac, should I just add this year’s amount to my 1st portofolio? Thanks!
If you want to diversify, why not, otherwise having 5 at the same provider is fine.
I have 5 at Finpension and this year I simply added more money to the one with the lowest amount.
So in reality you have multiple portfolios across different providers? Thank you for the response! And congratulations for this amazing blog!
No, I have 5 at Finpension 3a. But you can have 5 at finpension and 5 at VIAC (or 3 and 2, or whatever) :)
What I was saying is that it’s possible to combine multiple providers if it makes you feel better.
The two most annoying fees I have to pay are:
1. undeserved fees Swiss banks can charge you for keeping your pillar 3a money
2. customs fees charged for small parcels