Should we open a 3 Pillar account?

Hi dear community! I have a dilemma if I should open a 3rd Pillar account (for me and my wife) or it’s better to invest that money into ETFs for a better return in the long run (15+ years)? Not familiar with 3rd Pillar and not sure how the calculations return work in the long run. Does it really worth opening a 3rd Pillar rather than putting that money in a low cost ETF?

Check out https://finpension.ch and https://viac.ch/ they are probably the cheapest 3a offerings available right now that use etfs. If it makes sense to have a 3rd pillar depends on various factors such as your tax rate, how long will you keep the money in there (e.g. you might take money out for a house)

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You can invest in ETFs in 3P. Potential advantage of 3rd pillar is you save income taxes the year you pay in, the trade off is you lock the money away until you meet the criteria to withdraw at which point you pay tax, potentially at a lower rate.

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That’s a knowledge gap that you’ll have to close. Run your numbers based on your current life plans and see what option checks out.

Maybe have a look on the blog of @thepoorswiss, I’m sure he’ll have a good overview somewhere.

If I’m not mistaken, there are no ETF, only traditional index funds.

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Thanks - so it’s not a straight Yes answer if it’s worth having one or not. We’ll take the time to think it through and do some calculations. I guess I thought it really makes sense having one due to reasons I was not aware of - especially since many of you and also bloggers have the 3PAs.

IMHO it is totally worth having a 3d pillar account for everyone and as early as possible. I wish myself I had contributed earlier and more. Just to cite one example you can deduct your 3rd pillar contribution from your taxes, that’s already a win.

I was thinking of VIAC and Finpension which have funds with low or even zero management fees but you are correct they are not ETFs. I would not see any disadvantage of those vs ETF though unless I am missing something …(?)

Example where this would not make sense would if one’s marginal tax rate is low (eg lower salary) or for someone who plans to withdraw the 3P after moving to a country where it will be taxed at a high rate

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It’s close to straight with the current exiting investing solutions. I’ve long been reluctant because I didn’t trust VIAC (and much less Finpension, which I still don’t trust) to be able to stand their own and still be there when I retire. VIAC has since convinced me they’re very serious in their approach so that’s no more a concern of mine.

I had run the numbers for myself, the breakpoint was at about 15% marginal tax rate (marginal meaning it’s what any additional frank of income would be taxed. It’s easy to get by playing with our tax numbers if our Canton offers a tax software, otherwise, UBS has a decent enough way to approximate it (it doesn’t fully account for potential deductions): Pillar 3a tax calculator | UBS Switzerland

Another advantage of 3a accounts is that dividends/interests grow tax free (then get taxed at a lower rate when withdrawn) and the whole amount isn’t part of our taxable wealth (tax on wealth is low, but still there).

I’d run the numbers for myself but chances are opening 3A accounts for the money that isn’t needed in the short term (up to the max limit) would be beneficial.

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Without going too much off-topic (since the OP is asking “if”, and if so, “where”): why is this? And why not Finpension?

I generally like your way of thinking so I’m really intrigued :wink:

On a broad feeling, Finpension feels reckless where VIAC simply tries to align with FIRE values. Since it’s an important topic and I wouldn’t want to spread missinformation, I’ll have to make some reading before coming back to you on this.

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On the positive side in terms of technical FIRE for me Finpension wins because I can CSV export all transactions so better track the metrics for FIRE. With VIAC I only get only tons of PDFs which is very unpractical to manage and automate.

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If myself and my wife are both employed, can we open two separate accounts and deposit / deduct 2 x CHF 6883 each year? Meaning total deduction of 13766 each year for both of us?

Yes, but the exact amount is different every year, so don’t create a standing order. If you open an account with Finpension / VIAC, they usually tell you how much you can deposit every year.

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Is there any maximum cap for which we can get a deduction? Meaning that for families, there is no point investing more money in a 3A, above a certain threshold, just because it won’t be taken into consideration for deduction?

You’re not allowed to put more than the cap. (But the providers don’t talk to each other and won’t prevent you from shooting yourself in the foot, so don’t even try)

What is meant was, if is there any max deduction that we can get, for example:

  • assuming we deposited 2 x 6.8k for me and wife, in two accounts and we are entitled to get around 4 k of deductions, but we will only get 2 k because that’s the limit.

Every person that contributes to pillar 1 and pillar 2 (pension fund) is entitled to the full 6.8k deduction each year. There are no further conditions or limitations, to the best of my knowledge.

Pillar 3a is not available if you’re neither employed nor self-employed (and thus, don’t fulfill the pillar 1 condition). And the 3a limit is different if you don’t contribute to pillar 2 (low income part-time employment or self-employed without pension fund).

But if we do only one tax declaration, since we are married, ca we get “both” deductions?

I have run some simulations on my blog and compared it to several types of investing: Should You Contribute To Your Third Pillar In 2021? - The Poor Swiss

A good third pillar is almost always worth it in my results.

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Yes you can deduct the full amount for both persons on the same tax declaration. There is a column for you and one for your wife and for every person that earned income you can deduct the full amount as long as the income of that person was equal or higher than the amount you deduct.

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