Can someone explain what is the point of Pillar 2? Last time I checked:
they only have 30-40% of the funded money
they do 2-4% returns
their fixed/dividend income often does not even cover the management costs
Maybe I just checked the wrong ones though… I am self-employed, and I do not have pillar 2 or 3. For 2 everyone wants to push me to have, but I do not see the point - seems simpler and much better if I just pay more wealth taxes (canton GE). For pillar 3 the allowed amount is so small (20% of my fun gig income), that for the remaining 5-10 years it would add up just so little that again, the mental hassle does not seem worth minimal wealth tax savings.
Plus, the pillars lock me in a high pension age, I am 34, I imagine my real pension age will be 77… I definitely want to be on pension by age 50, preferably 50 (I already launched FIRE once, did not last, I was bored…).
I know you can take pillars to buy real estate, just the real estate market in Geneva is so bad for the 6 years I am monitoring it that I do not think it is realistic that we will ever by… (house with garden, not these new small ones in a great location…. nonexistent or 3M+ - there was one in our street, they advertised it, but of course, they gaslighted, wanted to show a different one - basically they are knocking down sometinhg would have been perfect for us, so they can build this new squished contigue style - I totally get the business motive here though, that’s life)
But probably my logic is flawed, because so many people cannot be wrong. So help fix my thinking please!
insurance (for disability, for partner pension, etc.)
possibility of getting annuity
You also need to look at it as part of some holistic portfolio. If your goal/risk appetite is 100% stock, this might not be for you. If you’re after something more balanced, it often has a place.
(That said with 3a, you have freedom of investment, so there’s little downsides besides lock-in, but it’s fine to have lock-in as long as it’s not 100% of your portfolio, even if you don’t plan to get real estate/go abroad to get it early, you can just see it as the part of your stash that is used for when you reach 60+ yo)
Thanks! At this point in my journey I am rather trying to keep earning an low, and prefer time. But that true, it might make sense for people who make 200-400K / year
Yeah, I already calculated this. Also the risk that the social security / pension system will collapse in Switzerland by the time I am 50. (It would not be without example that a developed country “touches” the private pensions…). With this 10M max switzerland, this is even bigger risk now (let’s see how that play out), because they imported ~3M people over the last few decades, but they might stop that now…
I mean it’s fine, if you have strong opinions on sustainability of pension fund, etc. You can stay away, especially if you have a choice.
Personally I do think the risks are worth it, and 2nd pillar is mostly sustainable at the moment (majority of 2nd pillar assets are overobligatory which do not have legal constraints on minimum interests, which allows funds to be balanced and meet actuarial requirements).
(1st pillar might be different though, but it should be an even smaller fraction of pension liabilities)
[10M initiative likely would have impact well beyond pension, but let’s keep politics out of the board ]
That said for low earners, pension funds can sometimes be subsized by the high earners, so might be an even better deal. (partially because most of your capital might be in in the mandatory part of the fund, with minimum interests and conversion ratio).
Do you have any source? Being self-employed, do you even have a pillar 2 (not), or do you refer to something else?
The pensions funds I know are around 110-120% coverage (likely even have to be above 100 due to regulation), aim for some 5% return (which is reasonable for a mixed portfolio in times of 0 interest) and while they don’t publish their management cost, I’d be surprised if the 3rd bullet point passes a fact check.
Could you please share the names of the ones you know with coverage 110-120% so I can check? That’s why I asked, I could not believe the ones I looked at (big names) are underfunded…
Anyone who offered more than 3% this year should be decently funded (since they wouldn’t be able to offer high rates otherwise). (Axa, profond, etc)
That said for self employed people (no employee), it’s possible there’s no good solution and those funds wouldn’t accept you (and if you don’t care about the insurance part, a 3a might be better anyway).
Especially for this technical interest rates. The 30-40% I checked years ago (I had to quickly decide what to do with a huge one-time money), focusing on a few funds I could have gone with as unemployed.
I think the discrepancy here that we mean something else about “funding rate” - I mean if they call it a private pension, it should be my money compounding truly, not even a rappen of it used to pay someone else out. Because then my real returns could become negative (plus I take all the other risks with them). I know that it is obligatory is for many people and I get the point, I have been trying to pull my strings as much as possible to make things optional (and that started with how I develop my skills, what I learn…). I do not like when governments are babysitting, it is capitalism in the end.
Maybe another day I will have a deeper look, so far looks like it is not worth it for me and feels a bit like the usual scams we have in Switzerland (although not as bad as the 3b insurance).
checked 2 funds annual report, back in the time, just this stood out. One was from an international org, other one I do not remember the, one with probably a red logo (the annual report pdf was all red design). Then I randomly quick looked other PDFs, but this was honestly a very quick investment idea to trash back then.
If that is paramount to you, then you should avoid the 2nd pillar if you can. It is a collective scheme with risk pooling. The risk is managed by the pension fund, with regulatory oversight from the Cantons and, ultimately, the Confederacy. The risk is pooled to some extent both inside of the pension fund and between pension funds with the guarantee fund to which they must participate.
What you hold is a claim on the benefits stated on your pension certificate/pension plan.
3a is closer to an individual plan where your contributions truly finance your benefits only, with the risk resting solely on your shoulders.
Good example: Nestle just confirmed that they will pay out 4% and coverage after payout at 121%. Also depending on salary/grade they match or exceed the employees contributions. So the 4% isn’t the most important, it’s that the employee contributions were more than doubled AND the employees earned 4% on the full pension while the overall pension is fully covered. nestle has a lot of issues (more recently) but the pension isn’t currently one of them…it’s still not the best in CH but it’s not the worst either.
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