Pillar 3a: bank or insurance – what are the differences?

Bank or insurance – which is better? There is no general answer to this question, because the suitability of a particular product depends on you and your individual situation. Deciding between a bank or an insurance company largely depends on your personal preferences: whereas an insurance product forces you to maintain a certain degree of savings discipline and offers you risk protection, a banking product ensures greater flexibility.

If a pension is not large enough to cover a person's normal expenses, this is known as a pension gap. Pillars 1 and 2 are not usually sufficient to maintain your accustomed standard of living in old age. Payments into pillar 3a are therefore becoming increasingly important. More and more employees in Switzerland are aware of this: in 2020, around half of them had a pillar 3a retirement planning solution.

Both banks and insurance companies are allowed to offer pension products for pillar 3a. At a bank, you can choose between retirement savings accounts and retirement custody accounts for securities, while insurance solutions always include additional insurance cover alongside retirement savings.

Pillar 3a is regulated by law, so the same conditions and tax advantages apply to all providers – whether they are banks or insurance companies.

Each year, you may only make payments up to a fixed maximum amount. In 2024, the set limit is 7,056 francs for people with a pension fund, and a maximum of 20 percent of net income – up to 35,280 francs – for people without a pension fund.

The receipt of benefits after the term of the contract is also subject to regulations: Payment is generally made when the OASI reference age has been reached, but can be requested five years before this age at the earliest. However, you can also withdraw capital from 3a products early for other purposes, for example to finance owner-occupied residential property, to emigrate or to become self-employed. If you remain employed after the reference age, you can leave the pillar 3a product in place for up to five years after the reference age and make payments into it.

The solutions offered by banks and insurance companies differ in various ways.

Pillar 3 banking products are flexible: You decide each year how much you want to invest in your pension. This amount goes toward your retirement capital in full.

Insurance policies combine pension savings with insurance. When you take out the policy, you specify the amount you want to pay in each year until you retire. Any subsequent changes require a contract amendment, which may be associated with costs. The additional risk cover protects you against the risk of no longer being able to pay the premiums, for instance in the event of invalidity. A certain insured amount is also paid out on your death. However, this insurance causes premium costs. These costs are deducted in turn from the retirement savings capital and from interest. As a result, the final retirement assets increase less than with a solution without risk protection. In addition, a detailed health questionnaire must be completed when the contract is concluded.

Banks offer two options for pillar 3a pension planning: retirement savings accounts or retirement custody accounts with investments in securities.

Retirement savings accounts

A retirement savings account allows you to save systematically and securely for your old age. It is extremely easy to obtain this type of account: you can open a UBS 3a retirement savings account online, for instance. You are completely free to choose how much to pay in, you receive interest, and you can save on taxes.

The flexibility of retirement savings accounts may be one reason why around two thirds of 3a deposits in Switzerland are managed by banks.

Securities accounts

A retirement custody account for securities may offer higher returns than a retirement savings account with conditions based on current interest rates.

With a retirement custody account for securities, you can flexibly combine investments and retirement planning by paying into selected securities funds that suit you. With sustainable Vitainvest investment funds, you can invest your retirement savings in a tax-deferred way whilst promoting sustainable investments, for instance. Due to the higher risks, securities portfolios are more suitable for long-term pension planning.

Insurance companies also offer pillar 3a retirement savings products – with or without securities investments. Insurance products differ in that they always include risk protection.

However, insurance products do not offer as much flexibility as banking products because the premium is fixed until the end of the contract term. There is also a “savings obligation”: many insurance companies do not allow you to suspend your payments. An early withdrawal of benefits or a change of insurance is usually only possible if you accept repurchase losses.

Retirement savings policies

A 3a retirement savings policy from an insurance company combines risk protection – for example covering invalidity and death – with a guaranteed amount that will be paid out as a lump sum on retirement. The advantage of this type of policy is that the insured benefits are guaranteed, as is the interest rate on the capital paid in. As well as the guaranteed benefits, you receive a profit participation each year depending on the insurance company’s business results. This is added to your retirement capital.

If you are not sure whether you can or want to continue paying the same premium until the term of the insurance contract, you can choose an insurance policy that offers premium breaks and allows a certain degree of flexibility for your deposits.

Unit-linked retirement savings policies

Insurance companies also offer unit-linked 3a solutions. In addition to risk protection, they include a securities savings process, which means that the savings component of the amounts is invested in securities.

This type of product offers higher potential returns than a conventional retirement savings policy. In the best-case scenario, you could even receive more than the contractually guaranteed interest rate. In the worst case, losses will be incurred because the prices of the securities will fall. That makes it a good idea to choose a policy that guarantees a minimum retirement capital, even if the securities do not evolve in line with the initial forecasts. However, this type of guarantee always comes at a cost.
 

You can choose between bank and insurance solutions if you want to strengthen your pension planning with pillar 3a. Both have their advantages and disadvantages and differ in terms of flexibility, potential returns and risk protection. To find a sustainable product that suits you and your situation, you should calculate your requirements in advance.

This involves estimating the income gaps you are willing to accept in old age. You should also consider to what extent you can plan your options for continuing to make deposits.

Regardless of which product you choose, there is one crucial factor: the sooner you start pension planning of some kind, the better.