Paying into Pillar 3a is worthwhile. Even bit by bit.
Maintain the standard of living you're accustomed to even after retirement with Pillar 3a. It's possible, if you take account of all the contributory factors. Deciding factors not only include the interest or return level, but above all, how long and how regularly deposits are made.
Interest rate levels have a crucial impact on asset growth
Interest rates are still incredibly low. In this environment, capital accumulation in Pillar 3a takes place at a significantly slower pace. For example, if you assume an interest rate of 0.1% over a time horizon of 35 years during which the maximum amount of CHF 7,056 (maximum amount for 2023) is contributed annually, then the resulting, cumulative interest income is CHF 4,496 and the final net worth is CHF 251,456. An extended low-interest phase significantly reduces wealth accumulation.
With the interest level rising again and an average interest rate of 1%, the interest income would increase to CHF 49,934. At 4%, the resulting final net worth is more than twice as high as it is at an interest rate and return of just 0.1%.
Securities solutions generate higher yield opportunities
It is possible to raise the yield opportunities by using securities solutions. These historically have tended to bring better returns than interest accounts. But they do involve greater risks and fees. On the other hand, temporary fluctuations in value can often be dealt with in view of the long investment time horizon. For account holders who are more willing to take a risk and have a long investment time horizon, products with a high equity component are worth considering as they make it possible to achieve potentially higher returns. Here, it makes sense to consult with an expert.
Not paying in for several years results in savings gaps
Not all households pay annually into their private retirement provision. In contrast to the second pillar, missed contributions to Pillar 3a cannot be made up for later under current legislation. The following scenario shows wealth accumulation with regular contributions of the current CHF 7,056 (maximum amount for 2023) compared to a person who makes no contributions for a period of seven years. Apart from the missed contributions totaling CHF 49,392, the interest income earned is lower.
Based on a mixed 3a model with an interest account and securities solution, the average interest rate and return assumed are 3% and 2%, respectively. In Scenario A, with an average rate of 3%, the accumulated interest income resulting from consistent contributions (A1) is over CHF 54,000 higher than with a seven-year gap in contributions (A2). In Scenario B, with a 2% annual return, the amount of interest lost was still over CHF 31,000.
Investing in your pension provision early on pays off
The older they get, the more frequently the Swiss tend to pay into Pillar 3a. However, for wealth accumulation, it would make more sense to start with retirement savings at as young an age as possible because anyone who saves over a relatively long period of time will achieve a higher final net worth with the same interest rate. In the following scenario, annual contributions of approx. CHF 5,040 for a period of 35 years results in a higher final net worth than if the maximum amount of CHF 7,056 (maximum amount for 2023) is contributed annually over a period of 25 years.
Even though the total contributions are identical, the "early bird" generates assets that are CHF 26,000 higher in the end than if the savings had started ten years later. It is therefore advisable to start saving for retirement at an early age – even if it is not possible to pay in the maximum amount.