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How do I close pension gaps through pillar 3a?

With pillar 3a you can save for your old age. This form of private pension provision is very popular because it is voluntary and you save taxes. You can also use pillar 3a to close any pension gaps, no matter whether your private pension provision is with a bank or an insurance company.

The most important facts about pillar 3a:

  • The amounts you pay in each year are capped. The cap is adjusted every few years.
  • You can only pay into pillar 3a if you are gainfully employed or receive unemployment benefits.
  • If you work beyond retirement age, you may still pay into pillar 3a for a maximum of five years.
  • You can withdraw your pillar 3a assets at the earliest five years before the regular AHV age (women 59, men 60).
  • In a few special cases, you are allowed to withdraw the money earlier – if you emigrate, go into business for yourself or buy a home that you occupy yourself, for example.

 

How to save taxes with pillar 3a:

  • You can deduct the amount you pay into pillar 3a from your taxable income.
  • All interest from pillar 3a is tax-free.
  • You do not have to pay wealth tax on your pillar 3a assets.
  • Your pillar 3a assets are not taxable until you withdraw them.

Here’s how much you can pay into pillar 3a in 2019:

  • If you participate in a pension fund: CHF 6,826
  • If you are self-employed and are not affiliated with a pension fund: 20 per cent of your net income, up to a maximum of CHF 34,128
  • If you are employed and your income is below the earnings threshold for insurance in a pension fund: 20 per cent of your net income

 

These amounts change from year to year. The latest figures can be found here: www.ahv-iv.ch.

3a savings with an insurance company: advantages and disadvantages

 

You can establish your private pillar 3a savings with an insurance company or a bank. Which solution is best for you depends on your personal situation.

 

Pillar 3a insurance combines two important features: savings for old age and insurance against risks. With savings you have two options: if you want to save risk-free, choose a product with a guaranteed payout at the end of the contract. However, as interest rates and guarantees are currently quite low, your assets won’t grow very much. If you want to speculate on a bigger gain, it’s better to choose investment funds with no guaranteed maturity payments. In both cases, pillar 3a will help you close any gaps in your retirement provision.

 

Tip: with investment fund products, you should not pay the maximum amount into your pillar 3a all at once. Spread it over the whole year. In this way you will benefit from different daily prices and pay less for your securities overall. This is called the “cost average effect”.

 

 

Here are Generali’s products:

  • Traditional life insurance: you save for old age and insure yourself at the same time in case you should become disabled or die. Your annual premium is used for two purposes: one part protects you against these risks, the other is put into investment funds. Life insurance is available with or without a guaranteed maturity benefit.
  • Risk protection insurance: you are insured in case you should become disabled or die. This product is the cheaper option because there is no savings component. The goal here is to insure against these two risks.
  • Endowment insurance: here the focus is on saving; the premium exemption is always included. The savings component is put into investment funds. This insurance is also available with or without guaranteed maturity benefits.
  • Digital pillar 3a: you can set up this solution online within minutes. Generali’s pillar 3a offers you flexible deposits, a savings contribution and low costs. It is suitable for people who already have a life insurance policy and want to save even more tax, or for newcomers to savings.
  • Addition of premium exemption: it is worthwhile insuring the premium waiver for 3a products as well. If you become unable to work due to an illness or accident, Generali will continue to pay your insurance premium. This means you’ll always get the guaranteed capital at the end of the contract This risk protection is not available from banks.

 

Your money is in safe hands with all these products. The entire capital is protected as tied assets under the supervision of the Swiss Financial Market Supervisory Authority FINMA.

 

Tip: for all products combining savings and insurance, you pay the same premiums for the entire term. This means you’ll know exactly how much your retirement provision will cost you up until the end of the contract. Generali is the only company in Switzerland that guarantees the premiums for disability pensions (supplementary insurance) for the entire term.

 

 

Saving with a fund policy: how risky is it?

If you would like to earn more than just the modest interest you currently receive on your retirement provision, the best thing to do is to take out a fund policy without a guaranteed maturity benefit. The maturity benefit is the amount you receive when the insurance expires. In the case of a fund policy without a guarantee, this amount depends on how well the stock market performs. To ensure that the risk is not too great, we offer you various safety mechanisms:

  • Risk reduction at the end of the term: five years before the insurance expires, the proportion of shares in your investment will be gradually reduced.
  • Broad diversification in the investment: we invest for you in over 5,000 individual securities worldwide.
  • Holding onto the fund units after insurance expires: this option makes sense if you have waived the risk reduction and the market price collapses at the end of the contract. You can continue to hold your fund units in a fund custody account and sell them at a more favourable moment.
  • Our investment managers optimise your fund units on an ongoing basis: you can be sure that you have always made the best possible investment, at a fair price.

 

3a savings with a bank: advantages and disadvantages

 

Pension provision with pillar 3a is part of the standard product range of practically all Swiss banks. You have flexibility in how much you pay in and can pause payments if you are short on money. If you are no longer satisfied with the bank or the conditions, you can simply move your 3a savings to another provider.

 

Pillar 3a at a bank is available as a savings account or a fund account. The savings account is a safe option, but it pays only little interest. Under certain circumstances, this option may not be enough to fill any gaps you have with pillar 1 and 2. With a fund account, the bank invests your money in securities. You normally benefit from higher returns than with a savings account.

 

Insurance and bank combined: Generali’s digital pillar 3a.

The benefits of an insurance and a bank solution are combined in Generali’s digital pillar 3a. You can set up this solution online within minutes. Generali’s pillar 3a is suitable for people who want to begin building up their old-age pension provision. You decide how much you want to pay in each year. You can adjust pillar 3a to suit your circumstances. Payouts are flexible: you can withdraw your assets at any time subject only to the restrictions of law.

 

 

What are the benefits of our pillar 3a?

  • You have control over how much you pay in at all times: in our customer portal you can see any time how much you have already paid in. You can also adjust the amount or frequency of your deposits there.
  • If you become unable to work due to illness or accident, we will continue to pay up to CHF 3,000 into your pillar 3a. If necessary, until retirement.
  • Our investment managers will actively manage your money and optimise your investments on an ongoing basis. Risk reduction is automatically included. This service is low cost and you can rest assured that your 3a pension provision is in good hands.

 

 

Tip: set up multiple 3a accounts. In this way you benefit from the different conditions and returns of various providers. This also means you can have the accounts paid out individually and collect your money in instalments. If you only have one 3a account, you cannot withdraw partial amounts. With this strategy you can save taxes, depending on the canton in which you live.

 

 

You decide: bank, insurance or both?

 

You now know the advantages and disadvantages of the various pillar 3a products. Whether you choose a product from an insurance company or a bank or a combination of both depends entirely on your personal needs.

 

For example, your age plays a role: if you are young, you should remain flexible. After all, you don’t know whether you might take a break in your professional life sometime – to start a family or work abroad, for instance. During this phase, you won’t be able to pay into your pillar 3a. Alternatively, you might start your own business, and insuring risks such as illness or death will suddenly become even more important.

 

If your circumstances change over time, you should be able to adjust your pillar 3a accordingly. Anyone who finds it difficult to save money in everyday life can “force” themselves to save by setting up an automatic premium payment (by direct debit or standing order).

 

 

Tip: are you unsure which pension solution is best for you? Let our experts advise you. They’ll analyse your situation in a personal consultation and show you suitable products. For a consultation, please contact us here: 0800 881 882.

 

 

Saving as much tax as possible with your pillar 3a

 

When you have your pillar 3a assets paid out, you must pay tax on them. A capital transfer tax is levied. The tax rate varies from canton to canton. On average, however, it is only one fifth as high as the tax on the rest of your income.

 

 

Have your balance paid out in instalments

There are clear rules governing how your 3a assets can be paid out. You can withdraw money from your pillar 3a at the earliest five years before the regular AHV age (women 59, men 60). If you work beyond retirement age, you may still pay into pillar 3a for a maximum of five years and then have the money paid out.

 

It makes sense to have the amount paid out in instalments over several years, because you’ll end up paying less in tax. When planning this, you also need to take into consideration:

  • your spouse’s retirement assets
  • money from your pension fund, if you intend to draw it as a lump sum
  • any assets you hold in a vested benefits account

 

You should stagger these payouts carefully so not all the money is taxable in the same year; that way you can save substantially on taxes by ensuring you are in a lower tax bracket.

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