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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I have been using both. Finpension and VIAC. VIAC performs better. Also, I could change VIAC very effciently to anormal 3rd pillar, so I didn’t loose any money over the stock falls over the last 12 months. Which is not the case for Finpension. Whereas I have been making money with Viac, I am still recovering my losses with Finpension. So definitely, better VIAC, by far.
For me, making it easy to let people try to time the market is a disadvantage :)
I’ve recently been recommended to not keep investing in a single 3a account, as it can lead to higher taxes if I take it all out at once on retirement.
Do you have any suggestions on a good strategy?
You have the answer exactly one comment below.
Hi,
That’s right. You should have five third pillar accounts. I talk about this in this article: Third Pillar: All you need to know to retire in Switzerland
Hello,
Thank you very much for the information, it’s very helpful ! I’ve got some questions :
1) I’ve read in one article from VIAC that you should have multiple 3rd pillar instead of one. What do you think of it ?
2) Is this also possible in finpension and would you recommand (if it’s possible) using both to mix aggressive / conservative ?
The article is : “Why a staggered withdrawal for the pillar 3a?”
PS : sorry if i’m not making sense, all this is new to me.
Hi Arnaud,
Yes, you should have five third pillar accounts to stagger your withdrawals at retirement.
You can do that at Finpension 3a without issues. I now have 5 accounts.
VIAC will allow 99% allocation as of the new year. Worth updating it accordingly.
Their email:
“Au 01.01.2023, nous augmenterons la part d’investissement maximal possible de 97% à 99%. Tous les clients disposant des stratégies standard “Global 100”, “Suisse 100” et “Durable 100″ profiteront de cette augmentation. L’augmentation de la part d’actions s’effectue automatiquement lors du premier trading de la nouvelle année.
En outre, les clients disposant d’une stratégie propre pourront également augmenter leur part d’investissement jusqu’à 99% à partir du 21.12.2022. La première mise en œuvre possible aura lieu également lors du premier trading en 2023.”
That’s excellent news! Will update my articles once I get some time.
Hi Baptiste, thank you for your article & advices. I would have some questions:
1) What do you think about True Wealth?
2) Do VIAC or Finpension have fees in case of total advance withdrawal (in case of leaving CH for example)?
3) For someone who does not know how long will be working & living in CH and with low finance knowledge, which option would you recommend?
Thank you!
Hi Victor,
1) My review of True Wealth and True Wealth 3a
2) Finpension has fees for advance withdrawals but VIAC does not
3) If you don’t know how long you are going to stay, it depends on whether you are going to keep your 3a when leaving or not. If you are not going to keep your 3a and may leave soon, don’t invest, use a cash 3a. If you are going to keep it, use Finpension.
Hello Baptiste,
I will bump the 2) point. Assuming you don’t know yet how many years you are going to spend in Switzerland (maybe 2, maybe 5, maybe 25…), do you agree with an opinion that VIAC is a better choice for the beginning due to a) no fees for advance withdrawals (as I understand your above comment, please confirm) b) cost-effective investments into cash, and when you finally clarify your future plans in Switzerland (e.g. you decide you want to retire here) – then it would be a perfect moment to move to Finpension and start adopting more aggressive, stock-based strategies there?
Reading your comments, I have a feeling starting with Finpension and stock strategies from the very first day is not the best idea in such an “uncertain” situation, so the more conservative model could be a more reasonable approach as for now.
If you don’t know how long you are going to stay, it may be difficult indeed to estimate how to invest.
Nevertheless, keep in mind that depending to which country you are leaving, you may keep your 3a and keep it invested until your retirement age. You don’t have to withdraw the money when you leave. That’s something else to take into account.
Dear mr Witch,
Thank you for your website, thanks to you I am using IB and love it.
Regarding 3rd pillar, have you checked the ubs passive 100 vitainvest. The cost structure seems simple with from 95-100% in equity. I would love to have your thought on it vs FP? Thanks a lot in advance!https://www.ubs.com/2/e/files/RET/FS_RET_CH1110134157_CH_EN.pdf
Hi Nico,
The fund itself is good, but the problem is that UBS will charge you 0.65% management fees on your third pillar and this is on top of the 0.25% fee of the fund. This makes about 0.90% per year for UBS which is more than twice more expensive than FP.
What is your opinion regarding 3a and “unbound” pension. In particular, that if you invest in 3a and make a capital gain on it, this is then taxed upon withdrawal (with the reduced tax rate). With “unbound” pension it is not the case resp. depending on the amout it will be taxed with the wealth tax rate.
Depending on the investment strategy, does it make sense to invest in the “unbound” pension plan and to have a “normal bank account” with (low) interest in the 3a pillar? For me very difficult to calculate what makes the most sense, especially when you consider the taxes…
Hi cd,
What’s an unbound pension? Your own investments?
With the much nicer returns of stocks over cash, it makes sense to invest in the 3a as much as possible even though you are going to pay more taxes at the end. Since you can make 5 third pillar accounts, you can also reduce the taxes over several years and the tax rate should be pretty low.
Lets call it 3b :-)
Probably more an optimization problem if you have more money to put aside and have a defensive investment strategy with a higher cash amount. This way you could put the maximum in 3a as “cash” and profit from the reduced tax and invest in 3b and don’t pay tax on capital gain.
Thanks for your reply!
If you want to be defensive, it may make sense indeed to have cash in your 3a. But you have to do that math:
* Dividends are not taxed in the 3a
* Capital gains are never taxed in the “untied” assets
* Net worth is taxed in the “untied” assets
Hi Mr Wicht
Thanks for the post. I would have one question for you. The swisscanto 95 passive can be accessed via Frankly, which has an all-inclusive fee of 0.45% (and they seem to be very proud of this). Have you looked into this? It is 6 basis points more expensive than finpension, but it has a good mix between large, medium and small cap companies. I would appreciate your thoughts on this option for the 3rd pillar.
Thanks!
I don’t see any advantage of that fund over finpension, or even over VIAC.
* 95% only in stocks
* Forcing hedging for the CHF
* No customization ability as to the different countries or stocks
* It is not more balanced in terms of caps than any other solutions
Hi Mr Wicht
I have been following your research and appreciate your work. Have you looked into the 3a options of VZ (Vermögenszentrum)? I am interested in the “VZ Säule 3a – Anlegerprofil 7” but have too little routine to put it into comparison.
Hi,
VZ has 0.68% annual fees plus the costs of the ETFs. So the minimum fee will be about 0.8%, twice more expensive than Finpension 3a. I would not recommend it.
Thank you for your answer. I read that 0.68% includes all relevant costs (“transaction fees, issuing commissions, redemption fees and securities account fees”) but did not realize that this probably excludes the ETF costs. Could also not find any ETF costs without making an account.
I would have two more questions. Does it not concern you that Finpension is a relatively young product and that the relevant funds are CS funds?
They mention 0.15% for ETF (https://www.vermoegenszentrum.ch/fr/competences/pilier-3a-des-couts-eleves-rognent-les-rendements)
They are not very young, they have been managing 1e and vested benefits longer than VIAC and Frankly. But the fact that they are younger than banks does not concern me, this is well regulated.
They just started offering Swisscanto funds if you prefer. CS retirement funds should be well separated from CS assets. They may be unavailable for a while in case of CS bankruptcy, but they won’t go away.
Appreciate your answer.
Swisscanto funds probably trade on much lower volume, am I right.
I just wonder, what about Bid / Ask spreads for 3a funds. Buy in for free at a high price could be similar to paying commissions for buy in at a better price. Also, the performance of the products can cancel the benefit of having no fees. Did you put effort into comparing their index ETF performance with the associated indices?
Yes, the volume should be lower for the Swisscanto fund. But you can’t have everything. CS funds are quite good. If you are afraid of CS, you will have to compromise :)
Normally, there is no bid/ask spread. These are mutual funds in which you can only buy once a day. But there are load and redemption fees which are usually worse than spread.
No, I did not compare it. Usually, the fund (not ETF here) performance is very close to the index, but there are variations (and always will be). I have never seen a case where this concerned me.
What’s your view for 3b from swisslife vs Zurich insurance
Hi Yas
Usually, I don’t think 3bs are necessary. Very few cantons have any tax benefits for 3b and most people don’t need life insurance.
I don’t have any thing on these two life insurance.
Thanks…the advantage of 3b is that one can park aside a amount every month into it and apparently at the time of withdrawal when one retires its tax free. Also a return of around 3-4% return so a good way to save for the future vs keeping same money in a bank and not earning any thing
Then, why don’t you simply invest with a broker or a robo-advisor? The returns of a capital life insurance are really bad. I would be really surprised if you got more than 2% per year, after fees. These products are expensive.
Without tax advantages, a capital life insurance is not interesting.