For the past week, I’ve been in a panic because I’ve read a lot of messages on this forum and this blog saying that this Smartflex product is a scam and that I should stop the contract.
I don’t understand what I have to lose apart from the 0.5% annual fee, and perhaps the fund’s performance, which isn’t as good as others. I know that many people on this forum have the mindset of maximizing their gains, but this contract offers me some security in the event of incapacity to gain. I have no intention of investing 100% of my capital in the stock market. I want to keep 60% of the capital as security.
Is this contract really bad for my investor profile?
What risks do I run by continuing with this contract?
Welcome on the forum. Those questions have been asked countless times, I invite you to try the search feature. Nevertheless:
While I do not know the specifics of AXA Smartflex, generally speaking 3rd pillar contract with insurance companies are not good products. And this for many reasons:
Expensive insurance premiums. Your policy is a combined product: some of the premiums is used to pay a life insurance, the other part is invested according to your strategy. Most of the time if you compare premiums for a standalone life insurance (i.e, outside 3a) with the same benefits you will see you are paying inflated premiums. It basically means there is probably much less invested that what you would expect, check the surrender value (Rückkaufswert / Valeur de rachat) on your last statement (or ask for it).
Hidden fees Most of the time there are more fees that what you expect, e.g., buy-in and redemption fees (often ~2-2.5% both ways), internal fees of the fund (TER), etc. on top of the stated management fee.
Low performing funds They usually lure customers in very young funds with high theoretical past performance. Why? because it is easy to build of fund which would have performed well when you know past returns. Good returns on a graph always sell well. However, past performance is NOT an indicator of future performance.
And others.
There is no one-fits-all strategy when it comes to keeping your contract or closing it. Ask for the surrender value of your current policy and check expected benefits/returns of alternatives (e.g., 3rd pillar @ finpension / VIAC with, if your situation requires, a standalone life insurance)
I managed to get on the path for disentangling myself from this a couple of weeks back. Will terminate it from the new year and transfer to Finpension.
The points against the insurance 3a are:
You are tied to this until you’re 65
there is no flexibility in how much you can add, and when - you can reduce monthly contributions (or annual equivalent) to 150-200/month, but otherwise you HAVE to keep paying. This could put you in trouble if you want to take a break, with a bank or VIAC/Finpension you can pay as much and whenever you like
if touch wood you have a health condition (like I do) they can prevent you from paying the yearly maximum if/when it is increased - big opportunity cost
the life insurance part is eating a good 15% off your money per year, which is lost forever, they do not explain this in the contracts unless you ask for it. For a test, see the difference between what you know you’ve paid, your portfolio value, and the surrender value, what I expect you’ll find is that your portfolio value is ~80% of what you paid in (REGARDLESS of how the market went, because the underlying funds are mostly TERRIBLE), and your surrender value is ~55% of what you paid in. This number is not going to get substantially better unless you’re nearing retirement - I mean you will lose ~45% of your contributions if you leave early.
to expand on the point above about the funds: there’s no flexibility in what you can use. I am/was with Swisslife and saw a 1.3% gain in my portfolio while the global market (eg VT) did 14% this year, this is an insane opportunity cost
so in summary, they take ~15% of your pension contributions every year which you can never recover, that’s money not saved and not invested (but you DO get tax benefit for it), and they take ~45% if you leave before you’re 5 years from retirement
you can get cheaper and better dedicated life and/or disability insurance, and better invested pension
if you want the tax benefit of 3A and exactly 0.0% risk put it in the bank with 1% interest, this is also better than 3A with life insurance.
People here like to call it a scam, I consider this an exaggeration. It would be a scam if they run away with our money, it works for some people, just not people who want to invest their pension. As pension investment vehicles they are absolutely terrible. You can do better.
Do you know if this is possible to get out of this contract before 3 years ?
I’ve only been on this contract for 21 months, but I saw somewhere that you have to do 3 years to get out of it. Is this correct?
Of course I don’t know the specifics for your contract, but I do know that my contract is worded in a deliberately opaque and obscure and misleading way. For example my own contract stated that “you can terminate at any time” and one paragraph below (literally) it said “you can only terminate if one of the legally stipulated reasons arise” (the 5 reasons for 3A: buying a house, leaving CH etc). That was clearly untrue - going to prison for murder is probably more lenient that that! - and I confirmed with the broker, what it meant was that you can terminate at any time but only take your full surrender value if one of the 5 reasons arise.
The surrender value had a ladder but it was only shown to me as an example by the broker, so it has exactly zero weight, the surrender value is calculated using NASA-level mathematics aimed at basically giving you a meager portion of your contributions back. What the contract did say was that terminating within 12 months of starting meant I’d lose all the principal (that’s probably already been paid to the broker upfront).
Logging into the portal I see that from 2*6883 (=13766 contributed) my surrender value is currently sitting just shy of 8000, so that’s a good 41% lost. That’s what I can transfer to another provider, and will do soon. Once your money is in the 3A system it stays there, but you knew that already, you can always move it to another provider (even a bank for 1% interest).
Opportunity costs, draconian serial killer level imprisonment contract terms, pathetically poor investment performance, hidden fees (they have to give you a detailed breakdown of costs if you ask, but won’t do it if you don’t because it’d probably be too sobering), poor life/disability insurance. Objectively could be called a legal scam.
P.S. what clued me to my mistake was that my first premium was 6883, in 2023 the 3A limit went up to 7056, however my premium was still 6883. I asked to contribute the maximum but the insurance refused due to a health condition I have and said “let’s revisit in 2024”, this struck me as an opportunity cost both in terms of tax savings and investment and prompted me to do more digging. I will admit I have been skeptical around the hate these products get around here, because I have some opinions on the ultra-efficient FIRE mentality, but the more digging I did the more I realised I could be doing a lot better in a dedicated invested 3A. I still maintain that these can work reasonably for some people, mostly those who are more risk averse.
P.S.2 perhaps the key aspect which should have put me off if how hard these insurance 3As are pushed to all newcomers in Switzerland, meaning there’s real profit to be made for the sellers, and when all these consultations and information sessions and FedEx are free then WE are the product. My own phone was ringing off the hook to get a 3A, once I did it stopped. We are new here, likely with good jobs and big motivation to do well, perhaps from lower level countries (so trust anything Swiss - I mean who wouldn’t trust a major Swiss insurance company?).
P.S.3 you say in your original post that you want to keep 60% of your money as cash, that’s a valid statement that works for you, in that case why not keep all as cash in a 3A with a bank and do investments outside of that if it makes you sleep better knowing that you have clearly split your risky from your safe options? The bank has no fees, it gives you a totally predictable interest, and you submit the certificate of contribution for the tax benefit. If you want the insurance part, 3A insurance is also subpar: if I die today mine promises to pay my wife and kids my total contribution as if I contributed until I was 65, that’s 149k CHF. A proper life insurance would pay 500k for 500/year. I didn’t research options for the disability insurance part, but they are promising to continue contributing to my 3A until I am 65 if I get disabled and can’t work. Sounds meh to be honest because it’s not something I or anyone else can benefit from anytime soon.
Personally I believe that passive investing in broadly diversified, cheap ETFs is less risky in the long term than anything else because you beat inflation and can catch amazing years (like 2023, for example, where the S&P500 did nearly +20%).
Hi @Lulu ! I am going through the same. In my case the broker deliberately lied to me. The possibility to transfer the money sitting in my 3a pillar account at any time was one of the mandatory conditions for me.
This was of course asked by me and confirmed by the broker many times but he never mentioned once that fees and who know what else would be deducted.
Of course this was just in words because at that time I was still naive and believed the system so did not ask for a confirmation also in written.
Also, in my case I asked to be sent all documents related to the insurance for my review, and the broker only sent me projections and a doc with some info but never the full condition document.
When we had the second meeting I based my questions on what I was provided with, he lead me to sign a contract on his tablet (telling me that this is common practice and much better than online signature). I said I wanted to read it, part of it says that I was sent the conditions (which I thought were the documents I was sent), and of course this was not the case
(I will not even mention how sneaky it was the whole process in convincing me that I absolutely needed the extra insurances because “otherwise I would have needed to leave Switzerland within 2 months if I lose my job”)
For sure I was naive and scared but I am also very disgusted by the fact that this is even legal.
However I cancelled the contract officially, since then nobody came back to me, just the same broker that scammed me trying to change my mind.
Since I confirmed my decision nothing happened, I asked to reach out to someone to confirm my surrender value and they initially gave me a number that does not work and then never answered.
Do not worry. It’s not that you have a problem or something. Indeed you get insurance as well.
As long as you understand the following, there is not much to worry about
invested money could have had better returns somewhere else
insurance costs might be lower if purchased individually
lack of flexibility (in terms of contribution amount and frequency)
buying commissions / fees
I suggest you just calculate what is your total cost of ownership to own this policy
annual ongoing fees
transactions fees at time of premium payment
insurance costs (if on top of ongoing fees)
exit charges (if any)
One point worth considering though-: normally people like to own different 3a accounts to allow for staggered withdrawal at time of retirement to optimise withdrawal tax. If you are linked to one policy, then it might not be possible.
Just wondering if you have been invested for 2 years, your contribution should have been 13.5-14K. Isn’t it? Why is it only 10K? Where is the rest? Lost in fees or something else?
Well, they didn’t lie, they just didn’t tell the whole truth and didn’t offer information not specifically requested. Wouldn’t hold up in a court of law. The 3A can always be transferred, but there can be costs.
Now this is indeed problematic but it’s cancelled out by you signing, of your own free will.
This suggests that there was no surrender value, otherwise you’d get a hard letter in the post with the final surrender value and confirmation of its transfer to another 3A provider. That was in my case.
This also sounds fishy AF. If you’re on a B permit you won’t have to leave, if you’re not on a B permit my understanding is that having insurance or not makes not a shred of a difference to immigration.
Nah, most people I know who’re uninterested in investing have a 3A with their bank for the tax credit and that’s it. Staggered 3A withdrawals are a bit more advanced for most people - and will likely be patched by the time many of us reach the withdrawal age. For the rest, I stand by like a zealot that insurance 3A is a terrible investment, the system is rigged to prey on newcomers who think everything is squeaky clean in Switzerland.
Hi @Mirager I agree with everything you said. Unfortunately, as I said, I was more naive at that time and did not know how it worked. There is nothing that “legally” can be used on my hand. Just a huge and expensive learning for me to use in life.
However, I really felt badly scammed, so horrible. And most importantly I felt I did not know how to exit this situation. Then fortunately I read online and I felt less alone.
For sure I have surrender value I am entitled to, which was also mentioned by the broker in his pathetic email to convince me to stay once again (but he did not say how much). I am waiting for the letter of confirmation from AXA, I am currently abroad and anyway I sent the letter and documents only 4 days ago. So hopefully it will be there waiting for me as soon as I am back next week.
I could see my surrender value on my account, in Swisslife’s site, you can sadly expect to lose ~40% of your contributions. You’re not the first who got done, so did I and many many many others…
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