Pillar 3a investment solutions are increasingly gaining ground against conservative pillar 3a savings accounts. Pillar 3a robo advisors, in particular, have experienced strong growth in recent years. The recent change that enables savers to contribute to close gaps in their pillar 3a retirement savings in arrears will likely sharpen this trend.
Many conventional retirement funds are expensive
moneyland.ch calculated the total costs of investing 100,000 francs over a 10-year term for 77 conventional retirement funds. In addition to the total expense ratio (TER) fees, the total costs also account for custody fees, flat fees, and sales charges (including deferred sales charges) charged by the service provider that offers the fund.
The results show that the average total cost across the retirement funds included in the study is 11,441 francs for the full 10-year term. That translates into 1144 francs or 1.14 percent per year.
However, there are huge differences between the 77 individual retirement funds. The total cost of using the cheapest fund is 340 francs per year, while the total cost of using the most expensive fund is nearly five times higher, at 1660 francs per year.
Affordable pillar 3a robo advisors
In addition to conventional retirement funds, moneyland.ch also analyzed the total costs of six pillar 3a robo advisors, with total costs being calculated in the same way as those of conventional retirement funds. For robo advisors that let users create their own portfolios using individual ETFs or index funds, moneyland.ch used the default portfolios offered by these robo advisors. Unlike retirement funds, which each have their own ISINs, the portfolios offered by some pillar 3a robo advisors include many different ETFs and index funds.
The results show that the pillar 3a robo advisors included in the study are notably cheaper, with an average total cost of 3764 francs for the full 10-year term. That translates into an average cost of 376 francs or 0.38 percent per year across the 64 portfolios used in the study.
The actual costs of the 64 individual portfolios also vary broadly, ranging between 140 francs per year and 600 francs per year. But the overall cost level is much lower than that of conventional retirement funds.
“Robo advisors for retirement savings are often cheaper than classic retirement funds. But there are also some affordable retirement funds. Comparing is worth it,” clarifies moneyland.ch analyst Felix Oeschger.
You can find a detailed overview of Swiss pillar 3a robo advisors along with useful information here.
Performance comparison: How profitable are Swiss retirement funds and robo advisors?
In addition to total costs, moneyland.ch also analyzed the historical performance for one-, three-, five-, and 10-year investment terms leading up to the end of October, 2024. The performance calculations account for dividends (total return) and TER costs, but do not account for possible custody fees, flat fees, sales charges, or deferred sales charges.
One rough conclusion that can be drawn is: The higher the stock component, the better the investment performed over the long-term.
Even a broadly diversified stock portfolio, like those typically used by retirement funds and robo advisors, experiences high volatility during turbulent market phases. moneyland.ch accounted for that by dividing the retirement funds and robo advisors into three groups: Small stock component (up to and including 25 percent), mid-sized stock component (between 25 and 75 percent), and large stock component (75 percent or more).
Performance over one year
Between the end of October 2023 and the end of October 2024, the performance of conventional retirement funds varied between 4.4 percent and 28.9 percent. Retirement funds with a small stock component gained 8.9 percent, on average. Those with a mid-sized stock component gained 12.3 percent, on average. Those with a large stock component gained 19.3 percent, on average.
The one-year performance of pillar 3a robo advisors varied between 3.9 percent and 23.0 percent, depending on the portfolio. Retirement apps with a small stock component (up to and including 25 percent) gained by 8.7 percent, on average. Portfolios with a mid-sized stock component (between 25 and 75 percent) gained by 14.8 percent, and those with a large stock component (75 percent or more) gained by 20.5 percent.
For the sake of comparison: The Swiss Performance Index (SPI) gained 15 percent over the same period. The Swiss Bond Index (SBI) gained 7 percent. The S&P 500 gained 31 percent in Swiss francs. These performance figures account for dividends (total return). Because Swiss pillar 3a retirement funds and robo advisors largely invest in Swiss and US stocks and bonds, these indexes provide a good benchmark against which to compare performance.
Performance over three years
The performance of conventional retirement funds between the end of October 2021 and the end of October 2024 ranged between -9.0 percent and 13.7 percent. Funds with low stock components lost 2.9 percent of their value, on average. Those with mid-sized stock components lost 1.8 percent of their value, while those with large stock components gained in value by 2.4 percent, on average.
The three-year performance of individual pillar 3a robo advisor portfolios ranged between -6.7 percent and 8.9 percent. Portfolios with small stock components gained 0.7 percent, on average, while those with mid-sized stock components gained 2.6 percent and those with large stock components gained 4.8 percent.
For the sake of comparison: Over the same period, the Swiss Performance Index (SPI) grew by 1 percent, the Swiss Bond Index (SBI) shrunk by 1 percent, and the S&P 500 gained 23 percent (in Swiss francs).
Performance over five years
The performance across all of the analyzed retirement funds between the end of October 2019 and the end of October 2024 ranged from -8.7 percent to 58.0 percent. The retirement funds with a small stock component (up to and including 25 percent) had an average gain of 2.8 percent. Those with a mid-size stock component (between 25 and 75 percent) gained by 10.6 percent, and those with a large stock component (75 percent or more) gained by 29.6 percent, on average.
The performance of pillar 3a robo advisor portfolios varied between -1.1 percent and 40.6 percent. The average gain was 6.0 percent for portfolios with small stock components, 20.1 percent for portfolios with mid-sized stock components, and 35.1 percent for portfolios with large stock components.
For the sake of comparison: The Swiss Performance Index (SPI) gained 27 percent over the same period, while the Swiss Bond Index (SBI) fell by 3 percent. The S&P 500 gained 78 percent (in Swiss francs).
Performance over 10 years
Between the end of October 2014 and the end of October 2024, the performance across the analyzed retirement funds ranged between -6.5 percent and 44.9 percent. Funds with small stock components gained 14.6 percent, on average, while those with mid-sized stock components gained 31.6 percent. The 19 large-stock-component retirement funds included in the study were all founded less than 10 years ago.
For the sake of comparison: Over the same period, the Swiss Performance Index (SPI) gained 81 percent, the Swiss Bond Index (SBI) gained 5 percent, and the S&P 500 gained 205 percent (in Swiss francs).
The 64 pillar 3a robo advisor portfolios included in the study were all created less than 10 years ago, making a performance comparison impossible for this time frame.
How relevant is historical performance?
It is important not to place too much value on historical performance, as it tells us little about future performance. The total costs and the size of the stock component are the most important criteria to look at when choosing a pillar 3a robo advisor or retirement fund. “An affordable pillar 3a investment solution with a 100-percent stock component spread over a diversified portfolio of stocks will likely deliver higher returns than a mixed portfolio with a bond component, or a pillar 3a savings account,” says moneyland.ch analyst Felix Oeschger. But investing all of your pillar 3a savings in stocks only makes sense if you will leave your money invested for at least 10 years, and if you are not swayed by periods of market turbulence.
Methodology
moneyland.ch studied the total costs and the performance of 77 conventional retirement funds and 64 portfolios from six different pillar 3a robo advisors. Unlike retirement funds, each of which is a unique mutual fund with its own ISIN, the portfolios of some pillar 3a robo advisors include many different ETFs or index funds.
The model used to calculate total costs was based on a fixed invested amount of 100,000 francs. Calculations are based on the assumption that the retirement saver buys and holds fund shares for a 10-year term, after which the fund shares are sold. In addition to the ongoing TER fees charged by funds, the total costs also account for custody fees and flat fees, as well as sales charges and deferred sales charges taken by the service provider.
The cumulative performance shown, which accounts for the TER costs of funds, is based on the assumption that gross dividends are reinvested without any taxes or fees (total return). The performance is calculated in Swiss francs (currency-adjusted), and only for the period in which the fund or portfolio was actually available, without backtesting.
The calculations are based on the current TERs of funds. The TER is the ongoing cost of using a fund. The TER does not include custody fees for the safekeeping of fund shares, flat asset management fees, or sales charges or deferred sales charges that benefit the fund’s issuer. These additional costs are accounted for in the total cost calculations. TER figures are calculated ex-post. The cost and performance figures used are those published by service providers, and moneyland.ch accepts no liability for their accuracy. Date: November 2024.
More on this topic:
Table: Comparison of pillar 3a retirement funds (German PDF)
Table: Comparison of pillar 3a robo advisors (German PDF)
Interactive Swiss retirement fund comparison
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