New study: The Increasing Importance of Private Pension Provision
Pillars 1 and 2 are facing serious financial pressure. Pillar 3 – private pension provision – thus becomes all the more important. The rate at which Swiss people save under Pillar 3a is a factor of their age, gender, and place of residence. All could stand to benefit, which is reflected by the latest study from Credit Suisse economists.
Demographic and economic developments are putting the Swiss pension system under pressure. The result is that pension funds are reducing their benefits. Future pensioners will have to accept lower pensions from the first two pillars. Flexible forms of working can lead to gaps in pensions, thereby reducing the pension that is finally received. This makes it all the more important to start a voluntary private pension plan in good time. The third pillar ensures the accustomed standard of living upon retirement.
A Nation of Savers
At the end of 2016, the Swiss people had saved over 113 billion francs under Pillar 3a. Payments into Pillar 3a account for more than 10% of all contributions to the three pillars. More than half of all gainfully employed persons make regular payments into Pillar 3a. However, the figures are lower for women, employed people under 35 years of age, immigrants, and people from French-speaking Switzerland and Ticino. Currently, the Swiss people allocate about one-fifth of their investments to securities solutions – although this is the place with the greatest potential for returns.
Pillar 3a in Numbers
Swiss francs in 2016 (billions)
Invested in securities solutions
Early Contributions Pay Off
The sooner the better – this applies particularly to Pillar 3a. Making contributions means saving on taxes every year. If the capital is withdrawn, it is taxed at a reduced rate. The savings are even higher if the withdrawals are staggered over several years. Securities solutions also increase the opportunities for returns. The longer the investment time horizon, the more worthwhile it is to take a higher equity component.
In general, what this means is that those who start early achieve a higher final net worth, even with an identical interest rate and deposit amount. Saving over the long term is worthwhile, even with small amounts.
Individual Effects of Saving
The level of tax savings varies from region to region. The new study by Credit Suisse details the regional differences of the various tax burdens. Different scenarios show how assets develop based on interest level, yield, and contribution patterns.