Pension Pillar 3a: the biggest myths

Around two thirds of the Swiss workforce is using pillar 3a. Nevertheless, there are still many misconceptions about it. We debunk them.

by UBS Insights 29 Apr 2019

Image: shutterstock.com

Myth 1

Only one pillar 3a account can be opened

Wrong. You should open several. The money in a 3a pension account must be withdrawn in its entirety once you reach retirement age. Since it is also taxed in the same year, it makes sense to split your assets between multiple pension accounts, including with the same bank. This enables you to withdraw it in stages, thus reducing your tax burden. 

And by the way, you can open additional pillar 3a accounts easily and quickly in UBS E-Banking. We recommend a balance of 50,000 francs in each 3a account.

Myth 2

Pillar 3a money is not secure

Wrong. There is no need to worry about the security of your pillar 3a money. Should a bank become insolvent, a total of 100,000 francs of pension fund savings (including vested benefit accounts) per customer are privileged in the event of bankruptcy, in addition to and independently of other bank deposits, which are already privileged and protected by deposit protection legislation up to a maximum of 100,000 francs. Thus, a maximum of up to 200,000 francs is privileged per customer and per financial institution.

If you put money into investment funds, you will be less affected if the bank becomes insolvent because securities count as special assets and are not part of bankruptcy assets.

Myth 3

In a 3a account, you can only invest up to a maximum of 50 percent in equities

Wrong. At first glance, it does look as if this statement is correct: the relevant legal regulation stipulates precisely this restriction. However, the same regulation also sets aside this constraint if there is sufficient diversification.

UBS Vitainvest 75 and UBS Vitainvest 100 are UBS investment funds with an equity portion of above 50 percent. These Vitainvest funds offer potentially higher yields, but are higher risk, i.e., a higher risk of fluctuations in value. They are suitable for investors who are sufficiently risk tolerant and have a suitably long investment horizon.

Myth 4

3a investment funds must be cashed in when you retire

Wrong. When you reach statutory retirement age, most banks automatically pay out your 3a savings. That would be a problem if the stock market was low on the relevant day and the investment funds had to be sold at an unfavorable moment in time.

At UBS, when you retire you are able to transfer your 3a securities free of charge to your unrestricted custody account. You can then decide for yourself the right time to cash in your investment fund.

Myth 5

You cannot pay into pillar 3a if you are unemployed

Wrong. If you are registered unemployed and receive an unemployment insurance (ALV) daily allowance, you can pay funds into pillar 3a. If you are registered as unemployed and receive a daily allowance of at least 81.20 francs, you are covered by compulsory insurance against death and disability by the Substitute Occupational Benefit Institution (if you wish, you can continue to pay into the Substitute Occupational Benefit Institution retirement pension / savings scheme). 

You can therefore pay in contributions up to the maximum amount permitted by law (currently 6,826 francs). Once you are no longer eligible for unemployment benefit, you can no longer make any further payments into pillar 3a.