Pillar 3a Your retirement savings deserve more

Retirement savings are often invested with a long-term perspective. This speaks for investment funds with a high equity allocation in pillar 3a.

by UBS Insights 30 Jan 2018

We all know the saying “Things were better in the good old days.” This is certainly true about interest rates. The interest rate for savings accounts was still around 1.75 percent 20 years ago. Today it is usually a modest 0.01 percent in annual interest. If we consider that UBS estimates an inflation rate of 0.6 percent for 2018, the annual interest on savings accounts will be more than eroded by inflation.

Given the current benefit level of the two mandatory pillars (AHV and pension fund), there is in principle a need for additional, private retirement savings to maintain your normal standard of living even after retirement. One particularly attractive option for supplementary voluntary retirement planning is pillar 3a.

Important: The investment period and returns are crucial for pension savings. Even if you regularly pay in only small amounts, you will amass considerable retirement assets over time.

Improve returns

The interest rates of pillar 3a accounts are, in most cases, only slightly above the zero percent mark. At this low level, it will be difficult to earn enough capital gains even over a long period. That is why it is advisable even in your personal retirement planning to tolerate somewhat greater fluctuations and to use the earnings potential in the markets better. Securities, and especially equities, are suitable for this purpose.

Pillar 3a retirement funds make widely diversified investments in bonds, real estate and also in equities in compliance with legal guidelines. A certain amount of risk tolerance is necessary since equity prices can fluctuate strongly.

Age-appropriate investing

A UBS study shows that pillar 3a pension assets should be invested differently depending on your age. Until you are 44, you can invest up to 75 percent of your 3a savings in equities. UBS recommends a portfolio with a 46-percent equity allocation for 45- to 56-year-olds. If you are over 57, you should transfer your ongoing contributions to a fixed-income account.