It's seen as complicated and boring - so many people put off planning for retirement. A mistake! Because if you miss out now, it's hard to catch up later. This issue of UBS magazine looks at the questions confronting most bank clients up to the age of around 45.
Two out of three employees pay into pillar 3a. Is it worthwhile?
Yes. Pillar 3a gives you the choice between an account with preferential interest (UBS Fisca account) and fund solutions whose value fluctuates in line with the financial markets (UBS Fisca custody account). You can also combine fund savings with whole life insurance (UBS Fiscalife). In each case, your money can only be withdrawn before age 59 (women) or 60 (men) under certain circumstances. Which option you choose depends on your attitude to risk. If you pay in the maximum amount permitted (currently 6,739 francs for persons with a pension fund) each year between the ages of 18 and 65 at 1.25 percent interest, you'll save around 427,000 francs. If you don't start making pillar 3a payments until you're 28, you'll accumulate roughly 314,000 francs at the same interest rate. The sooner and more regularly you make deposits, the better. Pillar 3a is usually worthwhile for the triple tax savings alone: payments can be deducted from taxable income, income and assets are tax exempt for the duration of the investment, and the payout is taxed at a privileged rate. In addition, when you withdraw pillar 3a funds the capital is taxed, but you may be able to avoid progression when withdrawing funds by opening two 3a accounts and arranging for the payouts to be staggered.
The 1st and 2nd pillar together are supposed to cover 60 percent of former income. Isn't that enough?
No. Most people spend just as much in the first few years of retirement as they did during their working lives. On top of which, the 60 percent figure only refers to income up to the mandatory occupational pension threshold, i.e. 84,240 francs per year. If you earn more, you will often not achieve the 60 percent target. This is because many pension funds use a lower conversion rate for any occupational pension savings above the mandatory level, and grant a lower rate of interest on these supplementary savings than the statutory minimum rate that applies to the mandatory savings. Which means many funds pay a pension of just 6,000 francs a year for every 100,000 francs in savings capital, or less. If you don't want to have to tighten your belt later in life, you should start saving under pillar 3a or the unrestricted pillar 3b.
I'd like to buy a home of my own. Should I dip into my 2nd and 3rd pillar?
Withdrawing retirement savings in advance to lower your mortgage costs means receiving a lower pension later or having fewer 3rd pillar assets to draw on. This may be a good move if it can be offset by lower living costs. But the current low interest rates are bound to rise sooner or later. Pledging your retirement savings can often work out better than an early withdrawal. First, you don't pay any tax on the capital payout. Second, the mortgage amount remains higher, meaning you have fewer taxable assets and the tax-deductible mortgage interest remains higher.
The retirement planning specialist
Nils Aggett is responsible for pension services and the topic of retirement planning at UBS. In UBS magazine he'll answer questions on retirement.
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