A smart choice can save several 10,000 francs
Due to good returns and tax savings at the same time, equity funds in the third pillar are interesting for old-age provision. However, there are big differences in the fees.
Those who make more of their provision can approach life in old age in a more relaxed manner. Fees play an important role in Pillar 3a equity funds.
Foto: Gaëtan Bally (Keystone)
Many a reader may have already received a call from a bank advisor recommending a fund with securities, pointing out a better return for the third pillar. In such discussions, the advisor usually refers to the bank’s own products, which are actively managed. With such funds, experts adjust the composition depending on market developments. Customers pay a higher fee for this effort.
Passive funds, better known as Exchange Traded Funds (ETF), are cheaper. They are composed like a share index – in Switzerland, for example, this can be the Swiss Performance Index (SPI). That’s why we sometimes talk about index funds.
The prospect of more lucrative fees appears to be influencing what financial services companies are offering. A survey by this newspaper shows that several banks mainly sell active funds with a high proportion of shares. Index funds with a high proportion of equities are sometimes even missing entirely.
Almost a year ago, Postfinance announced that it was dispensing with the cheaper passive funds in Pillar 3a, which annoyed some customers. But Postfinance doesn’t seem to be the only financial service provider to limit its offering in the lower-margin index funds.
Anyone interested in pillar 3a equity funds should also take a look at Fintech companies that operate their 3a products via a smartphone app. Well-known examples are Viac and Frankly – there are many more besides. These are often inexpensive because they focus on digital business with fewer staff. Here, too, index funds often help to keep fees low.
One product – two variants
In this context, the differences between the Zürcher Kantonalbank (ZKB) and the 3a app Frankly developed by it are astonishing: in the digital version, exactly the same product is available at significantly better conditions, which the bank confirms on request. The difference is particularly noticeable with an active fund, for which the ZKB charges more than double the fee.
When active funds achieve a better result than an index, experts speak of outperformance. One bank points out that the greater flexibility of active management can be an advantage in falling markets.
However, it is also noteworthy that some actively managed funds hardly differ from index funds in terms of their composition. Anyone who opts for an active fund should therefore obtain detailed information beforehand to ensure that the additional fee is worth it.
One-off outperformance says little
In addition, customers should not be overly impressed by a one-time outperformance during the consultation. Because a good return in the past is no guarantee for the future. That’s why the cost — the annual fee for the fund — is a more reliable guide.
The annual fee can make a difference of one percent or more between active and passive funds, as the comparison shows. That may sound like little to some. But due to the compound interest effect, this can easily amount to several 10,000 francs by the time you retire. Such figures show that it is worth comparing the fees. Unlike the pension fund, there is freedom of choice with pillar 3a. If you find a more convincing offer, you can easily switch.
How many shares someone buys depends first and foremost on their personal risk appetite and ability to take risks. Apart from that, pillar 3a is ideal for an investment strategy with a higher share component. Because the money usually remains untouched for decades.
Even strong price fluctuations on the stock exchange do not have to cause sleepless nights with a broadly diversified stock portfolio such as the index funds mentioned. After all, over a period of ten or more years – as shown by past experience – the best returns can be achieved with shares, despite temporary book losses. This applies in particular to young people who still have many years to go before their 3a capital is paid out.
Increasing demand for 3a funds
Because there has hardly been any interest on the account in recent years, shares have also become more attractive. There is also a tax incentive in the third pillar: payments reduce taxable income, and the accumulated retirement savings are not relevant to wealth taxes either. Key figures from the Swiss Pension Association confirm that the longer people invest their 3a pension capital in securities: According to this, almost 15 percent more 3a securities accounts were opened in 2021 than in the previous year, while the number of customers rose by just under 6 percent .
Financial service providers can and want to benefit from this development. And this in many cases with the mentioned recommendations for the expensive funds. However, experience shows that fund managers rarely succeed in beating index funds. ETFs are not only cheaper, but usually also achieve better returns. Especially in the long run.
Found a mistake?Report now.