Savers should pay attention to the costs

Digital pension solutions have been gaining in importance in Switzerland for years. For many years, financial products for pillar 3a were expensive and not very attractive for savers. In recent years, however, with the launch of many pension apps, tough competition has developed and fees have fallen significantly. The customers benefit from this.

With the pension apps, savers and investors can invest primarily in stocks, but also in other asset classes. The investment horizon for retirement planning is often long, and so the investments are ideal for building wealth. The apps use cheap index funds and so-called exchange-traded funds (ETF).

Big differences in fees

An important factor in choosing the right app is cost. Despite the large number of providers competing with each other, there are still clear differences. This is shown by a current evaluation by the comparison service Moneyland: According to this, the total costs of the pension apps are between 0.13 percent and 1.2 percent per year (see table).

These fees are not to be ignored. Anyone who has invested 10,000 francs in an app will pay 13 francs per year in one case and 120 francs in the other. At first glance, this may seem manageable. However, since the investment period for retirement planning often lasts several decades, these costs add up massively over time and eat away at the return.

On average, the pension apps are significantly cheaper than the traditional funds for pillar 3a. Moneyland puts the costs of the latter products at an average of more than 1 percent per year. According to the company, there are individual 3a funds that are similarly priced or even cheaper than some pension apps. In this respect, you should not write off the conventional Pillar 3a funds and compare the fees of the products and apps before making an investment decision.

As the end of the year approaches, the end of this year’s payment deadline for the tax-privileged Pillar 3a is also approaching. Insured people who are affiliated with a pension fund can pay in up to 7,056 francs this year. For self-employed people without a pension fund, the maximum amount is 35,280 francs or a maximum of 20 percent of net income.

However, vested benefits arise when you change jobs or lose them. Then you are no longer insured in the pension fund of your previous employer. If you do nothing, the saved retirement savings will move from the fund to a vested benefits account.

Test your own risk tolerance for stocks

When selecting the most suitable solution for Pillar 3a or vested benefits, pension providers should of course not only pay attention to the costs but also how the funds are invested – and in particular how high the equity portion of a product is. Products with a higher share of equities have a better chance of generating higher returns in the long term than those with a lower one.

However, the risk appetite of the respective investor must also be taken into account. If you can’t sleep well with a high proportion of stocks or are retiring soon, it’s better to opt for a smaller proportion or even a 3a interest account.

When choosing a pension app, you should also consider how easy it is to use and how transparently it shows the fees. Many investors also make sure that sustainable financial investments are used when investing.