Transfer to private assets – which is better?

Many banks sell pension funds that do not really deserve this name. In this article, we refer to such funds as pseudo pension funds. Pseudo-provision funds can be transferred to an open securities account on retirement. That sounds good, but it’s not a good deal. Real pension funds, such as those offered by finpension, are better. In this article, we show you why.

Costs of transferring pension funds to free assets

1. costs of the transfer of genuine pension funds

finpension relies on genuine pension funds. These funds can save taxes on foreign dividends. However, they cannot be transferred to free assets.

The funds must be sold on retirement. In addition, you will need to buy other funds in your free assets if you wish to continue to have the money invested in securities after retirement.

Because finpension does not charge any transaction fees, the costs for the transfer* of pension assets to the free securities custody account are very low. The only costs incurred are spread costs.

*Sale of pension funds / purchase of ETFs

To calculate the costs of genuine pension funds

2. costs of the transfer of pseudo-provision funds

Other providers rely on pseudo-provision funds, which allow the units to be transferred to private assets.

However, the loss of risk-free return on these pseudo pension funds over 25 years weighs heavily. The reason: pseudo pension funds cannot avoid taxes on foreign dividends over the entire holding period.

Calculating the costs of pseudo-provision funds

Conclusion:

The lost returns from pseudo funds are x times higher than the costs of transferring real pension funds to ETFs. It is therefore of no use if providers of pseudo pension funds transfer these funds to free custody accounts free of charge on retirement.

1. calculation of the costs of transferring genuine pension funds to free assets (in the case of finpension)

We can’t speak for everyone. But with finpension, the transfer of assets from real pension funds to free assets (ETFs) is very favourable. This is because finpension does not charge any fees for buying or selling the funds.

Spread costs: the only costs that always exist

The only costs incurred by finpension if you wish to transfer your pension assets to free assets on retirement are so-called spread costs. These are costs that are always incurred when buying or selling securities.

Spread costs refer to the price difference between the buy and sell price. Let’s take a well-known Swiss stock, for example Nestlé. At the time we wrote this article, the price of a Nestlé share on the stock exchange was as follows:

• Money rate: 84.46
• Letter rate: 84.50

The difference between these two prices is also known as the bid-ask spread. In this case, it is 0.047 % (0.04 / 84.46 * 100). The higher the average transaction volume of a share on a stock exchange, the lower the bid-ask spread.

“Money” means that you have securities, want to sell them and receive money in return. “Letter” means the opposite, that you want to receive securities (formerly in paper form like a letter) in exchange for money.

Average spread costs of finpension’s investment strategies

So what are the spread costs of an average investment strategy with finpension? We do the maths.

Investment strategy in pension provision: finpension Global 80
For the investment strategy with 80 % equities, the average spread on sale is 0.05 %. This happens to be the same as for the Nestlé share, although here we have only looked at the spread for the sale. We want to know how much a transfer to private assets costs. The pension funds must therefore be sold.

Investment strategy for free assets: finpension Global 80
The allocation is different for free assets. This is because it is more interesting to invest in capital gains in unrestricted assets than in pension assets. Capital gains are tax-free in free assets. In pension provision, capital gains must be taxed on withdrawal. For this reason, the global strategy in pension provision is somewhat more defensive and tends to favour more dividend-bearing securities. The average spread on the purchase is 0.084 %.

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2. calculation of the costs of pseudo-provision funds into free assets (with other providers)

Genuine pension funds can avoid taxes on foreign dividends. Read the following articles:

• Avoiding withholding tax when investing pension assets pays off
• Pension fund quality check
• Why ETFs are only second choice in pillar 3a

The tax advantage of genuine pension funds can be seen in their performance. All you have to do is compare a fund that is available both as a pension fund and as a non-pension fund. Then you can see that the genuine pension fund performs better. Let’s take an example:

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