The pillar 3a lets you save for retirement. In this interview Judith Albrecht, Head of Financial Consulting at the Zürcher Kantonalbank, explains the key points to consider in order to maintain your living standard after retirement.
Many Swiss worry about their retirement preparedness. Are these worries founded?
Judith Albrecht: The Swiss retirement system is facing major challenges. Life expectancy is increasing, while interest rates have sunk to a historical low. In order be able to guarantee lifelong pensions from the first and second pillars, either mandatory contributions will have to be raised or the contribution period must be extended. At the same time, family structures are changing. More and more couples are living together and establishing families without getting married. Under the current legal framework, that change makes it necessary to take steps to protect one’s partner financially.
Where is action required, in your view?
Until now, the rule has been: Pensions from your pension fund and the OASI should cover 60 percent of the last salary you received. That target was set back in 1985 when the law governing old age, survivors, and disability benefits came into effect. At that time, the minimum rate at which occupational benefits earned interest was set at 4 percent. In the meantime, that minimum has dropped to 1 percent. When the OASI was first introduced in 1948, the average person lived 14 years after the age of 65. Currently, the average person lives 23 years after age 65 – or 70 percent longer than in 1948. But the legal retirement age has remained unchanged. Pension fund benefits too have to last for longer and longer. These factors are forcing retirement schemes to rethink their benefit models.
Should we continue to assume that pensions will shrink?
It is safe to assume they will, in spite of measures taken by pension funds. As long as interest rates remain low, life expectancy continues to increase, and no reforms are undertaken, pension funds will not be able to avoid adjustments to benefits. Only changes to the legal framework can insure the sustainable securing of pensions from the OASI and pension funds.
How can one avoid financial gaps in retirement?
There is a need for more personal accountability for retirement planning. Voluntary retirement planning – using the third pillar, in particular – is now more important for maintaining your standard of living in your old age. It helps to balance out possible gaps which are not covered by the first and second pillars.
Within the pillar 3a, savers can choose between savings accounts, life insurance policies, and investment services. Which do you recommend?
A pillar 3a retirement account works a lot like long-term saving with a savings account. Within the fixed annual limit on contributions, which is currently 6883 francs if you also have a pension fund, you can deposit money if and when you want to. But in the current low interest environment, pillar 3a savings accounts hardly yield interest. Because of that, it is worth using an investment solution. These let you invest in a broadly diversified fund and you can already begin participating in financial markets even with small amounts of savings. Securities investments is especially well suited to retirement savings which will be held over long periods of time.
Many Swiss do not have a third pillar in spite of the possible tax savings.
Currently, only 60 percent of Swiss have a third pillar of retirement savings. Of those, only 25 percent use investment solutions. I think there is still a big need for clarification in this regard.
Conventional savings accounts do not pay off in times of negative interest. Many people do not understand the potential returns they are missing out on by not using the third pillar. The compounding interest effect in securities investments – meaning the impact which reinvesting stock dividends and interest on bonds has on the value of savings – is underestimated. Because investments made in the third pillar are normally held over long time frames, reinvesting has a visible effect.
The Swiss retirement system is complicated. That likely scares many people away from retirement planning.
The topic is complicated, on the whole. It is partially difficult to understand and varies between individual situations. That is why our consulting services bring clarity and our retirement products are easy to access.
A simple, digital solution like the frankly retirement planning app from the Zürcher Kantonalbank, for example, lets you manage your pillar 3a portfolio easily and cheaply.
We can expect to see digital solutions gain in significance in general. Customers want services which they can access at any time from any location.
Why should people saving for retirement choose frankly?
There are three important factors: Security, potential returns, and costs.
Security: frankly is powered by the Zürcher Kantonalbank – one of the world’s safest universal banks.
High yield potential: Using retirement accounts for pillar 3a savings does not pay off because of the low interest rates. With frankly, you can make fully automated or custom investments into investment products from Swisscanto Invest from the Zürcher Kantonalbank.
Costs: Thanks to the community discount, the all-inclusive flat fee on your assets is just 0.45% per year. That is 60% cheaper than some other, comparable offers. The details are available using our proven fee calculator.
As a moneyland.ch reader, you benefit from an additional discount when you activate frankly.
frankly: More about the retirement app
The frankly retirement app from the Zürcher Kantonalbank gives users a simply and affordable solution for investing for retirement using the pillar 3a. You can open a frankly account in minutes without visiting a bank. The app, with its simple dashboard, gives you a clear overview of your retirement savings anywhere at any time.
Use the discount code MONEYLAND to benefit from a 50-franc discount on frankly fees for moneyland.ch readers (redeemable until June 30, 2022 and valid for 48 hours after account opening). If you transfer to frankly before January 31, 2022, you get an additional 25-franc voucher towards fees.
How it works
1. Download frankly and create an account.
2. Enter the discount code MONEYLAND when creating the account.
3. Make your first deposit and transfer money to frankly.
4. Claim an additional 25-franc voucher towards fees if you transfer before January 31, 2022.
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