What return for the 3rd pillar?


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When you contribute for your future, you earn interest on your savings. However, both the interest rate and the return on your 3rd pillar depend on your choice of pension product. Savings accounts and pension funds do not have the same objectives and, logically, do not offer the same returns. In this article, we'll give you a few tips to help you select the best possible return strategy for your 3rd pillar.

A guaranteed 3rd pillar return with a savings account

Choosing to place your money in a savings account is a solution that doesn't allow you to benefit from a high rate of return. In fact, interest rates for the 3rd pillar in Switzerland are generally rather low, around 1%. This means that when you decide to withdraw your retirement capital, the total amount will be slightly greater than the sum of your payments. So, while the opportunities for 3rd pillar returns are not great with a savings account, it does offer guaranteed security. The interest rate remains unchanged from one year to the next, or for the entire duration of the pension contract, ensuring that you don't lose any money. What's more, this solution makes it easier for you to plan your savings, so you can anticipate more easily how much will be available to you when you retire.
Thanks to this high level of security, the low return on your 3rd pillar is almost forgotten. What's more, you benefit from particularly attractive tax advantages with linked pension provision - also known as 3rd pillar 3A - since it entitles you to deduct payments into your savings account from your income tax. What's more, when you get your capital back, you'll benefit from a lower tax rate.

The pension fund: a high but risky return

For a more substantial 3rd pillar return, you can invest part or all of your savings in a pension fund. Banks and insurance companies offer a range of financial products. These may include equities, bonds or real estate funds. To make your investments as secure as possible, it is highly likely that your savings will be diversified, i.e. that the contract will provide for an assortment of several investment products. Speaking of security, it's important to be aware of the risks involved in investing in a pension fund. In fact, results are conditioned by fluctuations in the financial markets. If the latter were to suffer a crisis, or even just a downturn, this would mean that you could potentially lose money. Don't forget that financial performance cannot be predicted, nor is it certified.
On the other hand, the return on your 3rd pillar, strictly speaking, is higher with a pension fund than with a savings account. In general, the rate of return quoted by professionals in the financial sector varies between 3% and 7% on average. So, when you withdraw your retirement capital, you should be able to get back more than you paid in, year after year.

Choosing the right return strategy for your 3rd pillar

In order to guide you towards the best pension solution, it makes sense to take a number of factors into account, not least the duration of your savings. If you want to put money aside for the long term, an investment fund may be the most appropriate option. What's more, the longer you save, the more you'll be able to cover possible financial losses. On the other hand, if you think you'll need to get your money back fairly quickly, you might want to consider opening a savings account.
Risk appetite is also an important criterion in determining the best return strategy for your 3rd pillar. Obviously, if you're the kind of person who worries easily, it would be best to avoid the provident fund and turn to the savings account instead.
Finally, depending on the size of your assets, your choice of return strategy will not be the same. Clearly, you should have less apprehension about investing in a provident fund if you have sufficient financial resources.
As you will have understood, adopting the right return strategy for your 3rd pillar is no mean feat, since you need to consider several factors before making your choice. That's why most banks and insurance companies take care of your savings and guide you towards the most advantageous financial products for your profile. You should also take the time to compare the various interest rates for your 3rd pillar, in the case of a savings account.

Important elements for the return on your 3rd pillar

If you are aiming for a high return and are therefore considering investing in a pension fund, find out more about the subject beforehand. These days, bonds, the stock market and real estate are readily available to the public. However, the guarantees and associated risks are much less well known. That's why, before committing yourself to a provider, make sure you properly decipher the solutions on offer.
You need to be aware that a return can also be negative, due to the uncertainty of the markets. What's more, if for any reason your chosen provider goes bankrupt, you may not be able to recover the full amount of capital paid in. It is therefore essential to pay particular attention to the contractual guarantees of your 3rd pillar and to take out insurance that will cover your capital in full in the event of bankruptcy. Bear in mind, too, that tax savings are the only truly guaranteed 3rd pillar return.
Finally, the return on your 3rd pillar can be summed up as follows: guaranteed but low with a savings account, or high but unstable with the pension fund investment solution. If you would like to take stock of your situation and your needs with regard to your pension provision, contact your financial advisor, who will be able to guide you towards the most suitable option.
Joffrey Maitre
Updated on: 31.01.2024Written by Joffrey MaitreHead of private provision department at Comparea
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