Pillar 3A at the bank or with an insurance, what is the best choice?

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Everyone who ever took interest in the pillar 3A has been faced with this dilemma: bank or insurance? Over time, with what we hear and what we read, we get a more or less general idea of what both options imply. 

Quick reminder: the third pillar B cannot be contracted via a bank.

Image of a balance symbolising the choice between a 3rd pillar A bank product and a 3a insurance policy

However, what we hear and read is directly related to what bank or insurances want to put forward. They all try to make you tilt on their side of the scale. 

But how can you make the right choice? 

3A insurance policies: who to turn to? 

One of the two alternatives to open a third pillar is to go through an insurance. Be cautious, not all Swiss insurances offer private providence! If you get in touch with Helsana or Assura to contract a third pillar A, the broker you will have on the line might not understand the purpose of your call. 

You will find below the list of third pillar insurers as well as the amount of the premiums (contributions) perceived yearly.

List of all insurance companies offering 3rd pillar A solutions in Switzerland

3A insurance policies: what is my third pillar made of?

If you opt for opening a third pillar A with an insurance, you will be deciding for what is called a mixed life-insurance. I must say this wording sounds very American and immediately makes me think of the huge jackpot my successors will get when I pass away. 

This popular belief is not absurd but it is slightly inaccurate.  

To put it simply, your third pillar at an insurance is always made of two parts and in certain cases three. 

The savings premium 

It is the part of your periodical investment (monthly/annual) which will be dedicated to your retirement. This part will go back to you when you will need it!

Explanatory figure to give an overview of the composition of a non-invested 3A insurance policy

If we want to explain even further, we can divide the savings premium in two subsections: 

  • The non-invested premium 
  • The invested premium  

At the end, your private providence will look something like this: 

Explanatory figure giving an overview of the composition of a 3A insurance policy with a share of the premium invested

This new part is the part of your savings which will be linked to investment funds and managed by the asset manager and the insurance.  

As you can imagine, the higher the invested part and the more talented the manager will be, the more your final amount will be undetermined. 

The risk premium

If you rely upon an insurance, it will, as its name suggests, have to insure something. It will not be able to simply keep your money. This risk part can be more of less important depending on what the insured person desires. 

Most of the time, this cover offers protection against: 

  • The death of the insured person by guaranteeing assets for the family members. 
  • The policyholder’s invalidity, the insurance policy pays pensions to bridge the gap in income following an incapacity of work. 
  • A future capital guaranteed for your retirement. 

Repurchasing values

Just to be clear, this is the most important part of your contract, and probably the vaguest one too. 

Even though explaining this is no small feat, there is not choice, we must do it. 

It is important to differentiate: 

Difference between the amount invested in a 3a insurance policy and the cash value of the contract in the first years

Let me explain, the amount paid each month / every year will not be equivalent to the amount your insurer will withhold. During the 10-15-15 first years depending on the structure of your product, your repurchasing value will be lower than the actual amount. 

Comparison between the amount invested in a 3rd pillar A insurance policy and the surrender value of the policy

This first example, which is an almost entirely invested third pillar shows us that I will have to wait from my 29th year of age to my 38th birthday in order to be able to get back an amount at least similar to the one I originally invested. 

This example does not represent every offer on the market! It is important to be very careful and specially to fully understand that if you wish to recover your assets in a couple of years to buy your home, become self-employed or enjoy early retirement, the solution offered by the insurers is not always the most suitable one. 

Why do repurchasing values exist? 

It is time to break the ice! Do you know why repurchasing values offered by insurances are so law during the first years? The answer is very simple: 

1- They will use part of the premiums paid over the course of the first years to finance the risk you want to get insured. Once you paid the part of the risk, they are safe! 

2- The broker (as generous as he may be ;)) has to earn a living. Yes, brokers can make really big commissions on your insurance contracts. This commission paid by the insurance to your broker will be financed by the first years of your contract. 

3- Just like everywhere else, a contract requires administrative, surveillance and monitoring. These administrative fees will also be deducted during the first years. 

There you go, now you know everything. Once you will have paid the administrative fees, your friendly broker’s commission and the risk you wanted to insure, only then will you start saving, not any sooner! 

In which case is a third pillar with an insurance the best alternative? 

After reading the paragraph about repurchasing values, you must be wondering what the is the point of investing on a third pillar A with an insurance?

While it is true that the repurchasing values are a real pain in the neck for someone who is saving money and wishes to open a third pillar A account via an insurance, insurances do still have advantageous compared with some banks. 

Insurances have well-built products 

Unlike third pillars in banks, insurers are stepping up efforts to create safe products, while being invested. They incorporate somewhat complex mechanisms to cover you in case of a sharp decrease in markets. For instance, they disinvest your money gradually before your retirement age to make sure not to be slapped in the face before the fateful hour. 

Every company has its own personal little thing, it would be both impossible and also way too long for us to explain them all to you. Pay attention and most importantly, research your product, because it can truly make a difference. 

Insurances have well managed products 

On top of being cleverly thought through, insurance products often use the services of competent asset managers. They aim to truly and actively manage the savings transferred. This management has a strong impact on the returns on your savings. 

Trust me, it is best not to have repurchasing values for five years and then make 5% per year tax-free for 30 years than opening a third pillar account at a bank on which you will make 1% per year! Not only will you have much bigger assets in turn, but you will also have better coverage in case life plays tricks on you, but touch wood, let’s hope this does not happen! 

3A bank accounts: what is my third pillar made of? 

For once, I will tell you that it will be simple. Bankers are simple people, or at least, there is nothing complicated about their third pillar products.  

There are only two alternatives:

  • An invested bank account 
  • A non-invested bank account

Every main Swiss bank offer both solutions along with several variations for investments based on the risk you want to take, or rather what they call in their lingo: your risk profile

There is no form of guarantees, death capitals or pensions. If you decide to go for invested savings and it works out well, that’s great. If not, that’s too bad!  

Just take the time to pay attention to the management fees taken from your account. Remember these fees are there for a purpose! It is important that the returns are in accordance with the amount of fees you are paying.  

That is it, saying more about bank will be useless. Each bank offers rather similar solution with varying results, the only elements to take into account are: 

  • The managers’ quality. 
  • The bank’s advantages compared with its competitors.
  • Whether the solution offered by the bank truly meet your needs and correspond to your profile. 

That’s it. Saying more about banks would be useless. Each bank offers similar solutions with varying results, the only elements to take into account are: 

  • The managers’ quality.
  • What the advantages of this bank would be in comparison with their competitors. 
  • Whether the solution offered by the bank truly meets your needs and corresponds to your profile. 

Bank or insurance, how to make a decision? 

If you read our articles about the third pillar at banks and at insurances, you probably understood that choosing an insurance and more specifically a product including an invested part, a part that is simply saved and covering the risk is not an easy task but it can be worth it. 

Choosing a bank is easier, all you have to do is ask for the factsheet of several banks and check their results for the previous years. 

Now, how to choose between a third pillar at a bank or at an insurance? It is very hard to say… it will depend on whether you have persons you want to cover (partner, children, etc…), if you have a mortgage debt you want to insure, if you are afraid to invest or not, etc. 

Keep in mind that it is possible to open several third pillar A so nothing prevents you from mixing both to vary the pleasures and the risks. 

Summary of the differences between banks and insurances

It is always simpler to get help in order to compare what is comparable. This is why I prepared a table for you which will allow you to see the main differences between both alternatives.

Table summarising the main differences between a bank-based 3rd pillar A and a 3A insurance policy

But stay attentive, these differences on third pillars A at banks or insurances are not set in stone and insurers frequently create products which contravene to these basic principles.

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