- What is the purpose of a pillar 3a (or 3rd pillar)? Is it really useful?
- Advantage of a pillar 3a in Switzerland
- Mustachians criteria to evaluate the best pillar 3a
- Quick reminder about mixed life insurances ;)
- Candidates for the best pillar 3a 2022
- Results of the pillar 3a 2022 comparison
- VIAC or finpension, which is the best 3rd pillar in 2022?
- The concrete case of the MP family
- Conclusion (with welcome bonus codes)
I am regularly asked which is the best pillar 3a in Switzerland.
Since my last article is a bit old, I thought it was time to compare the existing 3rd pillars in Switzerland in 2022 :)
The Swiss pension system is based on 3 pillars.
The 1st pillar (or AVS pension) is mandatory in Switzerland if you live or work here. It corresponds to the AVS contributions you have paid (i.e. the money you have paid) since your 20th birthday, and until the legal retirement age.
The 2nd pillar (or BVG pension) is the money you put aside via your pension fund when you work in Switzerland. It is automatically deducted from your salary. It is also compulsory from the moment you start working.
The pillar 3a (or third pillar) is an optional and personal Swiss retirement solution. Because generally, the 1st and 2nd pillars are not entirely sufficient to provide you with a full pension, it allows you to put some money in your pocket after your 64 or 65 years old (respectively for women and men).
The main advantage of the pillar 3a is that you can deduct your annual contribution from your taxes. On average, this saves you some CHF 1'000 in taxes per year!
Each year, the Federal Council defines a maximum 3rd pillar amount that you can deduct.
Maximum tax deduction pillar 3a 2022 employee: CHF 6'883
The maximum amount of pillar 3a for 2022 is CHF 6'883 if you are employed (i.e. you pay contributions to a pension fund).
And the maximum amount of pillar 3a for 2022 is CHF 34'416 if you are self-employed (i.e. you do not contribute to a pension fund).
As a Mustachian, we want to be able to invest this pillar 3a in the stock market in order to maximize our return over the long term.
Therefore, the two criteria for evaluating a pillar 3a are:
- Cheapest fees, so that you don't have to eat your return because of the banker's Porsche!
- Ability to invest up to the legal maximum in global equities (i.e. covering the whole world), to ensure the best possible retirement
You will NEVER subscribe to a pillar 3a insurance policy, also called 3rd pillar mixed insurance, or 3rd pillar life insurance.
This is the worst (legal) scam in Switzerland, and I explain everything on how to get out of it in this detailed article!.
And to understand why it is a scam, I recommend you to read this article from "Bon à Savoir" (in French).
That's it, the basics are covered. Let's move on to what really interests us!
Until the end of 2017, only a few banks offered to invest in the stock market your pillar 3a with OKayish fees.
I even went so far as to open a 3a pillar at the Cantonal Bank of Lucerne to benefit from the best 3a pillar in Switzerland (read here my article of the full story).
But a certain VIAC came along and kicked the banks and insurances who were gorging themselves with fees on the backs of their consumers.
This has led to the creation of several competing fintechs that are finally fighting on the right criteria to satisfy their customers, namely maximum returns for minimum fees.
Here are the Swiss pillar 3a offers that are worth considering in 2022:
I will compare for each of these candidates their strategy that invests the maximum possible in stocks, and the corresponding fees.
Taking the standard information from the various websites of these pillar 3a providers, this is what it gives us:
finpension is a clear winner with the lowest fees, as well as the possibility to invest in shares up to 99%!
But, if we take into account the VIAC friends invitation system, it changes the game. Indeed, by offering your code to your friends (pro-tip: it works like a charm by putting your VIAC invitation codes in the comments of this blogpost — just sayin'), you can get up to CHF 5'000 of free management fees for life!
Let's take the example of a VIAC portfolio with CHF 50'000 invested, and CHF 5'000 of free management fees, here is what it gives us:
And the same comparison with a VIAC portfolio with CHF 100'000:
The two major pillars 3a that win in 2022 are VIAC and finpension.
Clarifications about VIAC (currency exchange margin, withholding tax, and fee cap)
Margin on currency exchange
I regularly receive the question whether VIAC is really advantageous compared to finpension when it comes to currency exchange.
VIAC talks about its 0.75% basic currency exchange fee, while finpension promotes its 0% exchange fee (in reality, closer to 0.05%).
Except that, as explained in this VIAC FAQ article, VIAC optimizes foreign exchange globally across all client accounts. The result: VIAC exchange rate fees average less than 0.05% across all strategies.
Withholding tax at source
Also, I am often told that finpension is better than VIAC on this point too, because finpension emphasizes the fact that they invest in funds (and not ETFs). This allows them to have no withholding tax, and therefore to be more advantageous for us end investors.
But VIAC uses the same index funds (not ETFs) from Credit Suisse (as you can see here in the VIAC Global 100 strategy factsheet).
So finpension and VIAC are equal on this point, because they are both fully tax optimized (at least for standard strategies, because for customized strategies they go through ETFs).
Fee cap VIAC
The fee cap of 0.44% is applied first, then an additional allowance is deducted on top.
Let's take Global 100 as an example:
- No fee cap: portion invested 97% x management fee 0.52% = effective management fee 0.5044
- With CHF 50'000 invested, this gives us: 0.5044% x 50'000 = CHF 252.20 basic fee
- Thanks to the fee cap, the basis of the calculation must be reduced so that the effective management fee corresponds exactly to 0.44%, i.e.: 0.52% x 0.44%/0.52% x 50'000 = CHF 220.00 in fees
- This means that the new calculation basis (thanks to the fee cap) is as if the fees were calculated on 84.6% of shares (and not 97%), because 0.44%/0.52% = 84.6
- And therefore, the calculation basis adapted thanks to the ceiling of the expenses is CHF 42'307 (= CHF 50'000 x 84.6%)
- If, in addition, an allowance is added through the invitation of friends, this calculation basis is further reduced. For example: (CHF 42'307 - CHF 5'000) / 50'000 x 0.52% = 0.388%.
- So you will only pay 0.388% in fees
But who of finpension or VIAC is THE best pillar 3a for 2022 in the end?
The reason to choose the pillar 3a finpension
finpension is the best pillar 3a mathematically speaking, because the impact of investing 2% more of your portfolio in the stock market will be greater than the small difference in fees.
They use the regulatory framework (PPO 2) to do this by increasing the equity portion to 99%. The remaining 1% is to cover their expenses of less than half a percent; therefore they have no reason to limit the allocation to 97% or less (are you listening VIAC? ;)).
But VIAC has other interesting strengths.
Reasons to choose the pillar 3a VIAC
- VIAC tries by all means to optimize the attractiveness of its products by re-investing everything for its customers, cf. point 3 (compared to finpension and its affiliation system which benefits some bloggers — it's cool for me I don't hide it)
- VIAC offers free death and disability coverage: "You now receive up to 25% more of your pension assets in the event of disability or death. For every CHF 10'000 of assets invested in securities (calculated on the basis of the previous month), VIAC offers you free basic coverage of CHF 2'500 (max. CHF 250'000) in the event of death or disability (70% — disability level)."
- VIAC has a security process at account creation (aka KYC, or "Know Your Customer") while finpension has its own one at withdrawal time (perfectly legal as they are not depending on a bank, as they are a foundation). There is no factual security difference, but emotionally I know it can be a struggle for some readers
- And finally, THE feature that makes me love VIAC even more is their mortgage! If you are a VIAC customer, you can get a mortgage at a really good rate (especially in SARON) through the WIR bank which will take your pillar 3a invested in Global 100 as collateral!
So there you have it... VIAC or finpension? finpension or VIAC?
I see it this way:
Go to finpension if:
- You are looking for THE best pillar 3a mathematically speaking
Go to VIAC if:
- You need a mortgage
- You like the idea of having death/disability coverage included with your 3a (but for free!)
- Your emotional state can't accept a KYC process only at withdrawal time, and having it at account opening will make you sleep better than an additional 2% of shares for your pillar 3a (that's an expensive price but personal finance are known to be, well, personal ;))
What if you are already with VIAC? Switch to finpension?
If you already have a pillar 3a VIAC with Global 100 strategy, I would wait to switch to finpension because the fintech scene is evolving rapidly. And I wouldn't be surprised if VIAC adapts its offer, and/or if another big player like UBS or similar comes to this market one day.
The 3rd pillar of one of us is with VIAC. And we're going to leave it there, because we're in the process of transferring our mortgage to them.
Depending on how much equity we need to pledge from our 3rd pillar, we may also place our second pillar 3a with them.
If we have enough equity with our first pillar 3a, then we'll put it with finpension. That way, I can compare the two options :) I'll let you know how it goes in a few months.
🥇 finpension is mathematically THE best pillar 3a in Switzerland.
The draw takes place every 1'000 code registrations.
And 🥇 VIAC has very good strengths and can also be THE best pillar 3a for your situation if you choose your 3rd pillar from a holistic perspective (mortgage, death/disability insurance, and security).
My VIAC codes are: MCAdjpn, gCRfHUZ, CC9Q5oD, cCys4KN, and 1CEV12c.
If these codes are no longer valid when you read this article, go look in the comments to see if another Swiss Mustachian has posted his ;)
Whatever happens, whether you choose finpension or VIAC, you will make the right choice!
And you, with which pillar 3a provider are you? Or which one will you choose?
PS: as said in my previous articles talking about pillar 3a, feel free to share your VIAC codes in the comments below to make the Swiss Mustachian community benefit from it :)