The three pillars of Retirement in Switzerland – 4. Summary

Posted on Categories FIRE, Investment, Switzerland
The three pillars of Retirement in Switzerland – 4. Summary Logo
This post is part 4 of 4 in the series The three pillars of Retirement in Switzerland.

The previous three posts of the series covered the three pillars of retirement in Switzerland:

In this final post of the series, I’m going to summarize over the entire system. I am also going to talk about how early retirement works in this system.

Early retirement

If you are interested about early retirement, you have seen that none of the three pillars covers it. You can withdraw the second and third pillar only 5 years before retirement. Currently, this means that you can withdraw money at 60 years old. But early retirement means retiring earlier than 50. Some people even retire before 40. If you plan to retire earlier than the legal age in Switzerland, this will not help you a lot.

But, the current system is still helping for early retirement. While the three pillars may not cover your expenses after retirement, they will cover most of it. If you have invested enough into the second and third pillar, you should be covered. That means you only need to save for the years between early and official retirement. I say only, but it is not easy. But after official retirement, you will have new income (first and second pillar) and new savings (third pillar). Also, since you get tax advantages, you will be able to save more before you retire.

But you will have to pay the first pillar for these middle years. Indeed, you are entitled to pay it until your official retirement age. And it is based on your net worth. So, if you accumulate a lot, you may have to pay significant first pillar fees each year. However, I do not think this is a large problem.

If you are not interested with early retirement, you can focus mostly on the three pillars. If you want to retire early, you should focus on both the three pillars and on saving money to cover your expenses for several years. You will need an investment portfolio in order to cover expenses for many years. 

The three pillars system

Switzerland Three Pillars
Switzerland Three Pillars

Personally, I like the retirement system in Switzerland. Of course, it is not perfect. But I don’t think any retirement system is perfect. Overall, it is pretty good.

Let’s start with the good. It is somewhat flexible. You have many choices for the third pillar and some choices for the second pillar. It is somewhat fair. The first pillar is socially fair. Indeed, the rich will pay significantly more than what the poor will receive. And they will not receive significantly more. It forces you to save for retirement. The first and second pillar are forced savings. This means that everybody will save at least something. With this, everybody will have at least something. This is a good thing in my opinion.

Only the basic part is mandatory. Those that want complete coverage, can use second pillar buy-in and a third pillar. There are tax advantages. Contributions to both the first and second pillar are tax-advantaged. This encourages people to save money for retirement. Your employer is contributing. This is also really good. Your employer will match your contributions. Moreover, your employer could also offer you very good pension plan.

Now, let’s see what could be improved.

It’s too complex. It took me over 6000 words to cover all the details in the first three posts. And I didn’t cover several things such as divorce, death, foreigners or self-employment. While doing my research, I learned a lot. I had to gather information from many sources. In my opinion, it could be simplified. Or at least, there should be a complete source of information. Moreover, the biggest issue is that it depends on each state. There are big differences from one state to another.

One thing that is really missing is the ability to invest this money in the way you wish. I’m talking here about the second and the third pillars. For the third pillar, you have the choice of retirement funds. However, we should be able to choose index funds ourselves for both these pillars. This would lower the expense ratios, especially for the third pillar. This would also improve the returns, especially for the second pillar. This should definitely be an option.

My strategy

Finally, here is my current strategy regarding the three pillars:

  • First pillar: Nothing to do, simply continue to pay for it
  • Second pillar: I plan to do some buy-ins starting next year if my budget allows it
  • Third pillar: I plan to move all existing money in PostFinance 75. Once that amounts to around 25’000 CHF, I plan to create a second third pillar. I may do a term life insurance for couples since my state has some tax-advantages to it.

Here it is. I think I’ve covered pretty much everything important about the three pillars system. I hope this will be helpful! If you live in Switzerland, it is important to know these things.

What about you ? What do you think about this retirement system ? Do you have any question for this system ? Do you have any tips to optimize your retirement ?

7 thoughts on “The three pillars of Retirement in Switzerland – 4. Summary”

  1. Thanks a lot for your posts…I only just found this site, but there’s a wealth (sorry…) of good information here…especially as a non-Swiss living in Canton Vaud (Lausanne) finding this info summarised in an easy to understand format is perfect. Keep up the great work!!

  2. You did an awesome job researching and then presenting all the info.

    I have 3 remarks:

    1) The Canton of Solothurn (Soleurs) wanted to limit the number of 3a accounts. There was a court decision (in Soleurs) saying this is not permissible. This led to a general liberalization (e.g. my Canton Zurich stopped creating problems).

    2) Is the deduction of 1500.– not fully eaten up by the premiums for health insurance?

    3) Postfinance 3a 75 has a TER (~running costs for admin) of 1% – VIAC with 100% equity only of 0.56%. Are you sure you want to pool with Postfinance?

    Thank you for your quality blogging!

    1. Hello Martin,

      Thanks :) I’m doing my best!

      1) Oh, very good to know. That is really great.
      2) That is a very good question. I suppose you meant life insurance. I don’t know. I’ll have to see the offers we got. I’m still not sure.
      3) I opened the Postfinance account before I knew of VIAC and even before I knew of checking TER. It’s not a bad 3a, but it’s definitely not the best. Now that I’ve got it, I plan to continue with it for the time being. Today, I would not open a new one with them.

      Thanks

      1. 2) Just to clarify: If I am not mistaken (I may be, though!), the deduction for health premiums competes with the one for other personal insurance for the 1.5k deduction. As manatory health premiums are easily 3k, they often fill the deduction out entirely.

        3) I made the remark because I was in the exact same situation as you! Opened Postfinance 3a 75 before knowing about Viac (I am not payed by or affiliated with them!!). I hesitated, but changed because

        – that ~0.5% difference really adds up over time

        – changing costs nothing in fees and means getting out and back into the market (you may gain or loose by this)

        – Postfinance has a bit of a weird (=nonstandard) geographical equity distribution if I remember correctly: mostly swiss shares and ~ 15% US Shares.

        – When changing, I opened a viac account and chose my strategy, got the transfer form, sold the Postfinance shares myself, sent in the form to Postfinance and waited about 2-3 weeks before the money arrived at Viac. Viac invests on the first or second trading day of every month (index funds execute up to a week later).

        I am just describing my reasons and experiences here, as the topic of changing a 3a provider might be of importance for fire.

        Good luck.

        1. Oh, now I get what you are saying :) It depends from state to state. In my state (Fribourg), they have 1500 deduction only for the third pillar 3b life insurance. So this does not compete with health deductions.

          I agree that the fee does add up over time. Even a small difference such a 0.5% makes a big difference over a large time horizon.

          It seems they have 26% in foreign currencies, but I didn’t find the exact details.

          I didn’t even consider moving the funds actually… I maybe considered creating my second third pillar account in VIAC. I don’t know why I didn’t even think of transferring :P

          I have one problem with VIAC is the fact that it is mobile only. I much prefer to check my funds on my computer rather than on my phone. I don’t like phones… I’m going to contact them and see if it’s something they plan in the future or not.

          Thanks for the discussion. It is of importance :)

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