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Pillar 3a

Fund or account? The best way to invest pillar 3a assets

You make regular payments into a pillar 3a account. Is it worth investing the money in a retirement fund?

Isabelle von der Weid

Generally, it’s a good idea to invest your pillar 3a assets in securities, such as equities or bonds, in the form of pension funds. This gives you a better chance of generating higher returns than leaving your money in a standard 3a account – yields of up to 6% have been achieved in some cases since 2019, depending on the investment strategy pursued. By way of comparison, the average interest rate on 3a accounts has been about 0.65% recently. With a fund solution, you also benefit from the income generated not being distributed, but instead reinvested in the fund assets.

Think long-term

However, a pension fund does entail risks. Like all financial ­investments, they can be exposed to sharp price fluctuations­. That means it’s better to invest your money for as long as possible to offset any temporary losses over time. An investment horizon of at least four to ten years is advisable, depending on the equity allocation in the pension fund.

What if you need access to money at short notice?

If you want to access your pillar 3 assets earlier – either because you’re about to retire or because you plan to use them to buy your own home – it’s better to leave your assets in a 3a account. Otherwise there’s a risk of suffering a loss because the pension funds are worth less at the time of payout than when purchased.

How to calculate the risk

The longer your investment horizon, the greater risk you can assume when saving with the­ fund – giving you a chance to generate higher returns. You can do this by opting for a higher equity allocation in your pension fund – 45% instead of just 25%, for example. For very ­bold investors, some banks also offer funds with an equity component of 75% or more.

What about the fees?

In contrast to conventional investment funds, pension fund fees are relatively low. But it’s still worth comparing fees to avoid cutting into your return. At Migros Bank, you pay neither commission on the purchase and sale of pension funds nor custody fees.

Contributions are always worthwhile

If a pension fund isn’t an option for you, it’s still advisable to continue paying­ into pillar 3. That’s because you can deduct the amount paid into both funds and 3a accounts from your income tax each year. This tax benefit provides a ‘guaranteed’ return, so to speak.

Isabelle von der Weid is a customer advisor at Migros Bank.

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