Is paying CHF 500 into pillar 3a really worth doing?

Every contribution made into pillar 3a improves your retirement ­provisions while you’re still in gainful employment. The interest-bearing 3a assets built up supplement the state pension (old-age and survivors’ insurance OASI) and occupational pension scheme (OPA). This will help you to maintain your standard of living in old age. The first two pillars alone are often not enough.

Developing a savings routine

Even small contributions are worthwhile in the long term. Making regular contributions is more important than how much you pay in each year. This helps establish­ a savings routine that will give you a better chance of achieving your financial goals.

Monthly contributions can also be made ­to spread the financial burden evenly over the year.

Compound interest effect

The sooner you start making contributions, the more you benefit from the compound interest­ effect. The interest earned on your assets from the previous year is reinvested to earn more interest. This means even small amounts can grow substantially over the years. By paying in CHF 500 a year, you’d have around CHF 17,300 in your pillar 3a account after 30 years.

Funds rather than an account

If you’d like to improve your opportunity of generating higher returns, it’s advisable to invest your 3a assets in securities, such as equities or bonds. To do this, you will need to transfer the assets from your 3a account into a 3a fund. Depending on the investment strategy selected, returns of up to 6% per annum can be achieved.

However, the value of retirement funds can also fluctuate. That's why it’s better to invest your money for as long as possible to offset any short-term losses over time. An investment horizon of at ­least four to ten years is advisable, depending on the equity allocation in the pension fund.

Lowering your tax liability

Regardless of how much you pay in, every contribution made to pillar 3a reduces the amount of tax you pay. You can deduct contributions up to the annual maximum limit – which is CHF 7,056 for 2024 – from your taxable income.

The Federal Council recently decided that retroactive payments into pillar 3a will be permitted in future, although not yet for 2024. So it’s worth paying in the maximum amount if you can afford to.

Good advice: You haven’t invested in pillar 3a yet this year? Then make a payment into your 3a account by mid-December. You can lower your tax liability for 2024 by making an online transfer to Mi­gros Bank by 27 December.

Isabelle von der Weid is a ­customer advisor at Migros Bank and a retirement planning expert.