First of all, we would like to say that there is no “better” choice between a 3rd pillar in insurance or a 3rd pillar in banking.
However, each has advantages, similarities and differences.
Let's look at all this in detail.
Please note: the article will focus on the 3rd pillar A, but you should know that the 3rd pillar B can also be done in insurance or banking with the same benefits. To find out more about the 3rd pillar B, you can read our article on differences between A and B.
The basics of the 3rd pillar: banking vs insurance
The 3rd pillar in Switzerland is an essential element of personal insurance, complementing the 1st and 2nd pillars to ensure a comfortable retirement. There are two main forms of the 3rd pillar: the 3rd banking pillar and the 3rd insurance pillar.
The choice between the 3rd banking and insurance pillar depends on individual needs, the preference for flexibility or security, and personal pension objectives.
While the banking pillar offers more flexibility and is better suited for home ownership, the insurance pillar provides increased security and regular savings discipline.
Consultation with a pension expert, such as Finwise Assurances, can be useful in making the best choice based on your personal situation.
Advantages of pillar 3a in banking
Pillar 3a taken out with a bank has several advantages, particularly in terms of flexibility and savings management:
- No contractual commitment on the amounts paid: Annual payments are not fixed by contract, offering great flexibility in the management of contributions.
- Pause in payments possible: If you go through a period of no income or if your financial capabilities change, you can take a break from payments without closing your account.
- Simple savings account: Pillar 3a banking essentially functions like a savings account, making its use and understanding more accessible for most people.
- Use for home ownership: The 3rd banking pillar is often used to finance or guarantee a mortgage loan for the purchase of a main home, which makes it a versatile pension tool.
- Contribution limits: Maximum contribution amounts are regularly adjusted to reflect changes in tax and economic regulations.
- Reduced tax rate on exit: When funds are withdrawn, usually in retirement, they are taxed at a reduced rate, which is advantageous compared to other forms of income.
- Early termination: Under certain legal conditions, it is possible to withdraw funds before retirement age, thus providing some flexibility if necessary.
- Transparency of payments and capital: You have a clear view of the amount saved and the interest generated.
- No exemption in the event of incapacity to earn: This can be seen as a disadvantage, but it also simplifies the structure of the product without the additional costs of insurance.
The advantages of pillar 3a in insurance
The advantages of pillar 3a taken out with an insurance company lie in the additional security it offers and in its ability to provide more complete coverage in terms of pension provision, in particular with a life insurance integrated. Here are the main advantages of pillar 3a in insurance:
- Insurance in the event of incapacity to earn or death: This main feature guarantees the continuation of premium payments or the payment of capital in the event of death or disability, thus providing important protection for you and your heirs.
- Release of premiums in the event of disability: If you are unable to continue working, the insurance can cover premium payments, ensuring the continuation of your pension plan without interruption.
- Fixed contract duration: Unlike banking options, a 3a insurance contract generally has a fixed duration, often until retirement age.
- Guaranteed to achieve pension objectives: Thanks to the contractual structure, you have the certainty of achieving your pension objectives at the end of the contract.
- Flexibility in coverage options: You can tailor insurance coverage to suit your personal needs, which often includes options to increase coverage if your circumstances change.
- Technical rate guaranteed upon signature of the contract: Some products offer a guaranteed interest rate, which can be reassuring in an uncertain economic environment.
- Free choice of beneficiary clauses: You have greater freedom to designate who will benefit from your capital in the event of death.
- Possibility of pledging: This can be useful in certain situations, such as when purchasing housing.
Similarities between banking and insurance (table)
| Criteria | Banking and Insurance |
|---|---|
| Long term vision | Both offer a long-term foresight perspective. |
| Tax savings | Payments can be tax deducted in both cases. |
| Withdrawal Restrictions | Clear restrictions on the withdrawal of saved funds are applied. |
| Legal basis and tax incentive | Compliance with legal requirements by both service providers. |
| Maximum payment amount | A maximum amount is set annually for payments. |
| Withdrawal options | Withdrawal possible at legal retirement age, in the event of departure abroad, start of independent activity or to finance real estate. |
Differences between banking and insurance (table)
| Criteria | Bank | Insurance |
|---|---|---|
| Product type | Pension accounts and securities protection (provident funds). | Pension policies with or without guaranteed capital, and pension policies linked to funds. |
| Payment flexibility | More flexibility for the amount and regularity of contributions. | Regular payments with a fixed contract duration, often until retirement age. |
| Blanket | No insurance coverage in the event of incapacity to earn or death. | Includes insurance in the event of incapacity to earn or death. |
| Return and risk | Rates of remuneration for pension accounts and investment in securities for securities pension provision. | Surplus participation for pension policies and fund investment for fund-linked policies, with variable return prospects. |
| Use for home ownership | Best suited to home ownership due to flexibility. | Less flexible for payments and early withdrawal may result in additional fees. |
| Savings constraint | Less constraint, depends on the self-discipline of the saver. | Savings constraint due to the regularity of required payments. |
Our opinion: so bank or insurance?
Our opinion at Finwise Assurances is that there is no better choice between banking and insurance, in fact it all depends on your situation.
Besides, here are some situations where you can (perhaps) identify:
If you are an entrepreneur, whose income varies from year to year, the ideal banking pillar 3a. Contributions can be adjusted according to your financial situation without committing to regular payments.
If you plan to buy a house in the coming years, you can use your bank pillar 3a to finance your mortgage loan.
If you have a family to support, you will be attracted by the insurance coverage offered by insurance pillar 3a, providing peace of mind in the event of disability or death.
IF you struggle to save consistently, the contractual structure of the insurance would require you to make periodic payments and achieve your pension goals.
You can also proceed with a 3rd hybrid pillar with 50% in banking and 50% in insurance to benefit from the benefits of each.