The end of the year is approaching and everyone is talking about saving taxes. So make a quick payment into the 3rd pillar. Or would you prefer to pay into the pension fund? We tell you what is important.

Pension fund or pillar 3a?

Provided you have a good pension fund, we see the following advantages and disadvantages for the two options:

AdvantagesDisadvantages
Pension fund
  • Guaranteed minimum interest rate for the BVG compulsory scheme.
  • In certain pension funds, the risk coverage improves when you have more money in the pension fund.
  • The pension fund takes over the decision for the investment of the money.
  • Can be drawn both as a lump sum and as an annuity.
  • Hardly any right of co-determination over the forms of investment.
  • No free choice of pension fund (except for vested benefits).
  • Due to the increasing number of pensioners and the reform backlog, the situation of all pension funds in Switzerland tends to deteriorate.
  • There are certain pitfalls, such as no full restitution or enveloping conversion rates.
Pillar 3a
  • High degree of self-determination.
  • Chance of higher returns when investing in securities.
  • Change of provider possible at any time (except for insurance).
  • No guaranteed minimum interest rate.
  • No institution that takes over the decision on the investment of the funds.
  • Can only be drawn as a lump sum and not as an annuity.

Even if you are affiliated to a poor pension fund, a voluntary purchase may be worthwhile due to the tax deduction. In this case, however, you should only make a purchase shortly before a withdrawal, for example retirement. You may be planning to leave your current employer anyway. In that case, the poor conditions of the pension fund will be less of an issue. You can soon transfer the PF money you have saved to your new employer or have it transferred to a vested benefits account when you take time off. A PF splitting is also interesting.

Do you have a good pension fund?

What distinguishes a good pension fund from a bad one? There are two criteria you can use to judge:

1. Coverage ratio: a high coverage ratio is an indication that the pension fund is doing well. This is because the coverage ratio tells you how many assets the pension fund has in relation to your obligations. If the coverage ratio is well over 100 percent, that’s a good sign. If not, rather not.

2. Interest rate: a high interest rate above the BVG minimum interest rate is interesting in principle. However, it is also important that it is a sustainably high interest rate and not just a one-time high interest rate. A sustainably high interest rate is usually only possible if the pension fund already has a high funding ratio and achieves a good investment return in the long term.

The effective interest rate on retirement savings should not be confused with the technical interest rate. A high technical interest rate should always be viewed with scepticism. This is because a higher technical interest rate leads to a higher coverage ratio. The pension fund appears in a better light. Of course, a high technical interest rate can be justified, but only if correspondingly high returns can really be expected.

Killer criterion: restitution

In the event of death, it is not always guaranteed that the accrued retirement assets will be paid out in full to the beneficiaries. If there is no full restitution on the retirement assets, any partner pensions will be offset against the lump-sum death benefit. This can lead to voluntary purchases being completely lost. Therefore, voluntary purchases are only recommended in the event of a restitution.

Caution when buying into the extra-mandatory scheme

Many pension funds today have the model of an enveloping conversion rate that applies to both the mandatory and the extra-mandatory. If your pension fund uses this model, you should be careful if you want to buy into the super-mandatory.

The condition for a voluntary purchase is a pension gap

Moreover, a condition for a voluntary payment, which is also called a voluntary purchase, is a pension gap. Your pension fund can inform you whether you have a pension gap. The calculation of the pension gap and thus of a maximum voluntary purchase is relatively complicated.

Alternative to classic pension funds are 1e foundations

If you are not convinced of the advantages of your pension fund, we still have an alternative ready. In the extra-mandatory system, there is a form of pension provision that is closer to the 3rd pillar model. This means that you can avoid the disadvantages of a classic pension fund. However, you cannot join a 1e foundation yourself. This would have to be done through your employer.

Later transfer of pillar 3a to the pension fund possible

If in doubt, you can opt for pillar 3a. This is because it is possible to subsequently transfer the pillar 3a to the pension fund in a tax-neutral manner.