3a pillar: a place to hold emergency cash

Investing / Others
21

Ok, so here’s one sample calculation of the tax advantage which pillar-3a has over non-3a.

TL;DR: in this very example 3a would indeed be 0.2% cheaper (due to taxes) than non-3a. Or put the other way round: 3a can be up to 0.2% more expensive and still be economical.

PS: I know, if you choose different numbers you end up with a different result … but be kind, it’s just an example :slight_smile:

Assumptions:

  • 100’000.- in assets, 2.5% dividend, 2% capital gain, 20 year investment horizon
    • within 3a: 6% Kapitalbezugssteuer, TER: 0.6%
    • outside 3a: 15% income tax, 0.33% Wealth tax, TER 0.4%, 0.045% gain due to income tax deduction (0.3% Portfoliomanagement deduction at 15% tax)

Within 3a:

  • holding cash in 3a:
    • 0.3% interest for 20 years => 106174, minus 6% Kapitalbezugssteuer => 99’804
  • invested in 3a:
    • 2.5% dividend + 2% capital gain - 0.60% TER = 3.90%
    • (100’000+3.90%)^20 = 214;937
    • 214’937 minus 6% Kapitalbezugssteuer = 202’041
  • investment gain vs cash in 3a: 102’237

Outside 3a:

  • holding cash outside 3a:
    • no interest, 0.33% wealth tax minus 300.- CHF income tax deduction => -0.285% loss per year, at 20 years => 94’452
  • invested outside 3a:
    • 2.5% dividend - 15% income tax = 2.125%, plus 2% capital gain, minus 0.4% TER, minus 0.285% wealth tax = 3.44%
    • (100’000+3.44%)^20 = 196’685
  • investment gain vs cash outside 3a: 102’233

Long story short: with 0.6% TER in 3a you get about the same investment result as with 0.4% outside 3a after 20 years (in this 1 example).

I know this is a ridiculous attempt at forcing an almost impossible comparison between 3a and non-3a where there are so many variables (tax bracket, canton, market fluctuation, future tax law changes, etc etc) - but still, I think it might give some small hint at what tax advantage 3a might have. So it seems the taxing of the Kapitalbezugssteuer is rather balanced when it comes to the advantages of not taxing dividends directly (thus longer compounding) vs capital gain and dividend tax in the end… interesting :slight_smile:

Please review and criticise the calculation at your pleasure!

3 Likes
Portfolio opinions
Investing a larger sum at 20 years old (still in school so I can't invest for at least 5 years)
22

In Vaud it’s 0.15 % (at least a year ago it was)
You find it in the instruction generales under ‘code 490’

23

Yes, that’s right and I hadn’t seen it:

1.5 ‰ des titres et autres placements de capitaux déclarés sous code 410

Thank you!!!

25

In Vaudtax, it’s automatically calculated

26

You should also take the opportunity cost into account that the tax saving of 3a actually allows you to invest more outside 3a as well. (e.g. Instead of investing 6700 outside of 3a you could invest 6700 in 3a + ~1200 outside 3a)

27

No. That was the whole point of the comparison. I calculate total cost inside and outside 3a. This is independent of whether you pay into 3a.

Let me make another example: you have 50’000 in 3a and 150’000 outside and decide to keep 50’000 in cash for emergency. This is after you paid into 3a already. Now you can either keep 50’000 cash outside of 3a or inside. And my calculation is an attempt at proofing that it is more efficient to keep the cash inside 3a, since even with the 0.2% more efficiency inside 3a the cheapest option (Viac with 0.5% TER) is 0.3% and you can go cheaper than 0.3% outside 3a (eg VT on IB at 0.12%). Mind you that the cash inside 3a gets higher interest too, so the overall advantage of cash in 3a is sth like 0.3%.

Now the problem is that you might have more in 3a than you want to keep in cash. Fine. Then invest the rest in 3a, sure. But don’t have much longterm/emergency cash outside of 3a

28

Or in other words: even when looking at the overall tax effects (eg the tax free dividends etc) all current swiss investment offers within 3a (including the seemingly cheap Viac) are more expensive than offers outside 3a. So use sparingly.