The Pillar 3a Tutorial

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Thank you guys for your replies. I totally get it. I really do :slight_smile: One more attempt: I´ve prepared a spread sheet with my elementary school level calculations.
Assumptions:

  • VZ Total TER (0,68%+ETF TER) = 0,92%. VZ portfolio composition I found in one of the @nugget posts here
  • Overall Yield 5.0% for (1) IB Depot option and (2) VZ portfolio + investing the tax savings with IB (for comparability purposes)
  • Tax saving annually 1200 CHF
  • Total TER of ETF invested with IB depot 0,2%
  • I do not consider stamp tax, trading costs at IB, Depot fee at IB, dividends (therefore pure capital gains), etc.

Here are my results (hope the picture can be enlarged):

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Bottom line is, through “money generation” due to tax saving one can compound OK. Yes, you pay higher fees (in my example around 46kCHF in total after 30 years VZ + ETF TER), but there is 6768 CHF (-2% cash) + 1200 CHF tax savings working for you simultaniously, where without 3a pillar investment “only” 6768 CHF would be working for you. One simply has more money for investing. And after a while you can transfer the stash compounded to a safe harbor - standard 3a bank account with hopefully higher interest rate by then. Please keep in mind that within 3a pillar you do not pay taxes on dividends (to my knowledge), helps the compounding in first place. At withdrawal however one has to pay reduced income tax. I believe it is similar when you withdraw an annual amount x from your IB account at retirement. It counts as income and will be taxed. Correct me if I’m wrong here.

It is however clear that the money in the 3a pillar is locked and accessible only within few scenarios addressed earlier in the blog.

It might be completely stupid to waste time with these calculations, but I (still) believe that there has to be a way to use 3a pillar and currently available products on the market to make it work to your good. Again I think that there will be a better product on the market in the (near) future and swapping from one 3a pillar product to another one is always an option.

Sorry for annoying everyone with this topic again.
Please comment.

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