What is the best third pillar in Switzerland for 2021?

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What is the best third pillar in Switzerland for 2021?

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

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 (0.56%).
  • 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

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 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

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.

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

  1. Hey Poor Swiss,
    this article, or the previous one about third pillar, made me investing in finpension 3a. It was a great choice so far. Thanks again!

    Do you consider writing an article about an upcoming crash and how to behave before and during one? This could be interesting since the internet is full of articles talking about this topic recently. Your opinion would be highly appreciated.

    Have a great day :)

      1. great article.
        which of these offer capital protection ?
        and whats your view on zurich vs swisslife for pillar 3 a & b

        1. Hi Yasin,

          No third pillar invested in stocks will ever offer capital protection.
          I have no idea about Zurich vs Swisslife for third pillars. Both of these are insurances are not bank third pillars. I do not recommend third pillar life insurance because it’s too expensive for the life insurance premium and the returns on your money are extremely low. If you actually need life insurance, take a proper life insurance, not one linked to the third pillar.

    1. Hi,

      With an insurance 3a, you will have to pay for the premium of the insurance itself. With a bank, you get to keep all your money.
      Also, with banks, you get much better investment options like Finpension and VIAC. I am not aware of any insurance that will let you invest in low-cost funds with up to 99% of your money.

  2. Thanks for the article Swiss Poor,

    Viac is offering the option of decreased processing fees by inviting other members. How do you think it compares to finpension with this offer included?

    1. Hi Nick,

      Since this is capped at only 5500 CHF without fees, this only makes a difference for “low” amounts of money in the third pillar. So, if you have less than about 30’000 in your account, VIAC can be cheaper because of this bonus.
      But this is not counting on the potentially higher returns of Finpension with 99% instead of 97% in stocks and potentially more foreign exposure. So, overall, I do not think this invitation system matters much.

      1. Hi,
        I am considering moving to FP as well, but what’s the advantage? In 6-7 years I will be retiring….

        – 0.1% lower fees
        – 99% investing in stocks/etf’s

        What is the risk (assuming similar performance)?

        – etf course risk
        – 1 month out of business
        – on boarding at FP without personal identification
        – any experiences with FP?

        1. Hi Klaus,

          The advantages are indeed the lower fees and the 99% in stocks. If you want, you could also get more aggressive and max out the exposure to foreign currency, which could increase your long-term returns.
          The risk is mainly on the added volatility but should be minimal. The cost of 1 month out of the stock market could be high, but impossible to evaluate.

          Now, whether you should move to FP depends on where you are now. If you are with VIAC and only have 6-7 years befor retiring, it won’t make a huge difference either way. So, if you are happy with VIAC, you can stay with them. If you are using something else, it’s likely worth it to move to FP.

          1. Hi Mr Poor Swiss,
            yeah right now i´m with VIAC (Sustainable 100) and quite happy with them. They have 2 other points should be mentioned:
            – very helpful and responsive support
            – chat function

            The point is i have 6-7 years before retiring. I´m not sure the two arguments 99% in stocks and lower fees are worth moving especially when having 1 month out of investing. right now this can be very high cause the markets are booming a bit….

            Cheers, Klaus

          2. Hello Mr Poor Swiss,

            currently i´m with VIAC (SUSTAINABLE 100) and quite happy with them. I also think there will be not a big difference. Ok lower fees and maybe more gain because of higer stock percentage but on the other side the risk of losing profit during the outage of 1 month.

            VIAC has 2 advantages vs FP:

            – chat functionality and
            – so more responsive support staff

            FP is not planning to implement this in the near future.

            But anyway, i´m curiuous how FP will develop in the future and are there any experiences about their performance?

            Kind regards, Klaus

    1. I am assuming you are talking about the World 100 Sustainable. It’s incredibly expensive, at 1.63% per year. That’s three times more than VIAC and four times more than Finpension 3a!

  3. Hey Mr. The Poor Swiss,

    First of all, I want to say a huge thank you for your amazing website! I’m reading and following it for a few moths now and it was very helpful for me. I started investing (for now through Selma and TrueWealth as I can’t decide which broker to choose (…) so for now I opted for boots instead of nothing), opened a Neon account and 2 Viac 3a.

    I would like to share one piece of information for those of you who, like me, regret the lack of ID checks at registration with finpension. You can simply send pictures of your ID per mail. finpension will check your identity and keep your photos on their file. It’s what I did and now I have a Durable 100 3a by them :)

    Regards,

  4. Hello there,

    VIAC has lowered the prices of its 80 and 100 strategies! For example Global 100 is 0,45%. Still a bit more than finpension, but it is a very good news!

  5. Hi great post!
    Are you sure that postfinance applys a 1% TER?
    I found this of their website:

    Issuing commission (one-off)
    – 1% at PostFinance, or 0.5% for
    holders of a private account plus,
    a youth or student account
    – no issuing commission for the
    retirement funds
    Swiss federal stamp duty (one-off)
    – only due when purchasing units in
    funds domiciled abroad (0.15%)

    1. Hi Jack,

      TER and issuing commissions are not the same thing! The TER is a management fee that you are going to pay every year on your invested money (in percentage).
      The issuing fee is how much you pay to get shares of the funds.

  6. Hi The Poor Swiss, thanks for this great content, s always :)
    VIAC just announced a fee cap at 0.44% which makes it equally cheap with finpension, even for aggressive strategies.

  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.

  8. 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.

  9. 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.

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