Retirement account Pillar 3a – bank or insurance?

Cutting your tax bill and saving for retirement: Pillar 3a offers clear advantages. But is an insurance or a bank solution better?

by Stephan Lehmann-Maldonado 14 Sep 2016

Insurance or bank: At second glance there are differences.

You can’t lose by paying into Pillar 3a – Mr and Ms Schweizer are convinced of this. Fifty percent say they have set up a Pillar 3a account. Often, however, the opportunities they provide are far from exhausted. Many workers do not pay the highest amount allowed into Pillar 3a. In 2019 the maximum contribution that can be deducted from your taxable income is 6,826 francs.

Risk protection doesn’t come free

So which solution is better for Pillar 3a: Insurance or a bank? Insurance solutions can be combined with risk protection (such as a lump-sum death benefit), and often automatically include a waiver of premium in the event of disability. Risk protection isn’t free of charge: This additional protection involves paying insurance premiums. At a later date these will be missing from retirement assets. With insurance you have to pay the agreed 3a contributions until the contract term expires, or convert the insurance into a paid-up policy at a loss.

Bank is more flexible

“There is no risk protection if you choose the bank solution, but it offers flexibility. You can take a break from paying into your 3a account at any time, although regular deposits do make sense,” says Nils Aggett, head of UBS Pension Services. He adds: “People often misunderstand, but you can make smaller deposits depending on your financial situation. It doesn’t always have to be the maximum contribution.”

If required, you can make up for the lack of insurance cover with a separate risk insurance policy. Pension savers with a long investment horizon may also be interested in fund solutions, such as a UBS Fisca custody account. This lets you put money into investment funds and improve your return opportunities. This solution is also flexible, and can be closed down free of charge. On retirement, the fund investments can be transferred to your free assets – i.e. they don’t have to be sold at an unfavorable time.

Bank vs insurance: The key points at a glance

Duration. Unlike banking products, insurance products have a fixed duration. Even though insurance can be cashed in, it is usually a losing proposition.
Payments. When and how much you pay into Pillar 3a is completely up to you with the bank solution. By contrast, payments in the insurance solution are governed by the policy.
Early withdrawal. Funds can only be obtained before retirement under Pillar 3a in certain circumstances – like when buying your own home, setting up a company or moving abroad. With insurance solutions, early withdrawal can only lead to losses.
Costs. Bank solutions are usually free. The insurance costs are amortized with the payments.
Transfer option. Pillar 3a accounts can be transferred from one bank to another, sometimes for a charge. The insurance solution may not be terminated or transferred without significant cost.
Risk protection. Bank solutions do not provide risk protection. However, you can also add a waiver of premiums with the insurance solution. This way you can meet your savings targets even if you are unable to work.