Maximum Returns in Pillar 3a: How to Achieve Successful Retirement Planning
Published on 2025-10-22
Pensions from the pension fund are decreasing, and the AHV is also facing demographic challenges. Therefore, private retirement savings are becoming increasingly important. But how can one better secure their financial future for retirement?
Retirement Provision in Switzerland: A Growing Concern
Retirement provision has been one of the biggest concerns of the Swiss population for years. The approval of the 13th AHV pension by the electorate in March 2024 will hardly change this. Demographic change remains a central issue.
Fewer Workers per Pensioner
The Swiss pension system has been based on the three pillars of AHV, occupational pension (pension funds), and private pension (pillar 3a and 3b) for nearly 40 years. Since the introduction of occupational pensions and pillar 3a in 1985, life expectancy has significantly increased: men now live an average of nine years longer, and women about six years longer. At the same time, the birth rate has fallen from 1.9 to 1.39 children per woman. This means that the number of workers is decreasing while the number of pensioners is increasing. Over the past 20 years, expected pensions have significantly decreased. The upcoming retirement of the baby boomers from the 1950s and 1960s poses particular challenges. Therefore, private pension savings are becoming increasingly important.
More and More Swiss People are Saving for Retirement with Pillar 3a
Pillar 3a as an instrument of private retirement savings is extremely popular in Switzerland. A representative survey by Comparis from 2022 shows that nearly 70% of Swiss citizens utilize tax-advantaged private retirement savings. Employees can contribute a maximum of 7,258 Swiss francs per year tax-advantaged to pillar 3a, while self-employed individuals can contribute up to 36,288 Swiss francs or 20 percent of their earned income.
3a Accounts as a Losing Proposition
The market for third-pillar pension solutions is gigantic. About 140 billion Swiss francs are lying dormant here – mostly still in 3a accounts that yield little return. This is evidenced by figures from the Federal Social Insurance Office (BSV) from 2022. In the past, 3a accounts were an alternative to securities solutions due to attractive interest rates. However, in recent years, interest rates have fallen sharply, and inflation currently exceeds interest rates, leading to a losing proposition.
Traditional insurers and established banks dominate the market. Nearly two-thirds, or about 90 billion Swiss francs of 3a assets, are held by banks. Only about one-third of these assets are invested in securities or investment funds. Data on deposits and withdrawals from the BSV also shows that women are generally more cautious in their investment decisions and therefore prefer less risky investment forms, which can also lead to lower investments in securities.
Insurance policies that consist of a savings and an insurance component are also popular. A study by VZ VermögensZentrum found that 43 percent of men and 22 percent of women use this form.
Optimizing Private Retirement Savings
The studies mentioned show that the possibilities of private retirement savings are often only partially utilized. One way to optimize is to open multiple 3a accounts or securities accounts to stagger withdrawals and save on taxes.
Investing Wisely is Crucial
Due to the long-term nature of the funds in pillar 3a, they are excellent for (properly) investing. However, the selection and expected returns of the individual solutions are crucial. Securities solutions are still relatively uncommon. This is surprising because even beyond the age of 50, the investment horizon for securities investments is still long enough. Those who invest in private retirement savings in stocks typically opt for a moderate allocation. The option to invest 75 or even 100 percent of the 3a assets in stocks and thus benefit from a long-term higher return is utilized by only a few. Many banks and insurance companies offer pension funds that have a mixed investment structure and are focused on fixed-income securities. Due to low interest rates, this often results in a negative outcome for the investor after costs.
According to a study by Banque Pictet, those who invested their retirement funds in the Swiss stock market over the past nearly 100 years have been rewarded with an annual nominal return of 7.7%; after accounting for inflation, this still stood at 5.6%. With an investment horizon of 13 years or more, there has never been a loss in the Swiss stock market.
Do Not Underestimate the Power of Compound Interest
Experience shows that many investors underestimate the magic of compound interest. Even small differences in returns and costs can make a huge difference in the end. For example, if we contribute 7,000 CHF per year (the maximum amount in 2026 is 7,258 CHF) to pillar 3a for 20 years, at an interest rate of 2%, we will have about 173,000 CHF after 20 years. At 5%, it will be around 243,000 CHF, and at a return of 7%, we will be about 307,000 CHF richer after 20 years.
Conclusion
Private retirement savings are becoming increasingly important, but studies and personal experiences show that many people are not fully utilizing the options available in the third pillar. It is particularly important for younger generations to learn from these insights and optimize their private retirement savings. It is unlikely that the financial situation of the AHV and pension funds will improve significantly by the time they retire, such that these pensions will be sufficient to maintain their standard of living in retirement. Therefore, it is even more important to take timely action and strengthen private retirement savings. Especially in pillar 3a, it is advisable to carefully consider the choice of investment solution. The compound interest effect has a tremendous impact over the long investment period on the final amount we can expect at retirement. A correct decision can thus quickly lead to differences of several tens of thousands of francs.