For Aron Veress, CEO of Liechtenstein Life, being able to make subsequent purchases in the 3rd pillar creates new possibilities in terms of planning.
From next year, it will be possible to fill contribution gaps in pillar 3a by making subsequent redemptions for the amounts not paid from 2025, as the Federal Council announced last November. What will be the implications of this reform for people who contribute to 3rd pillar private pension provision? And what other aspects should you pay attention to when investing in pillar 3a or saving for retirement? An update on these questions with Aron Veress, CEO of Liechtenstein Life Assurance.
From 2026, people who, in certain years, have not made a payment into their linked individual pension (pillar 3a), or who have only paid part of the authorized amount, will have the possibility of supplementing their contributions. by carrying out buybacks within ten years. This possibility will be granted for unused amounts (pension gaps) from 2025. How do you analyze this change and will it really have an influence on voluntary individual pension provision of the 3rd pillar in the long term?
The impact on voluntary 3rd pillar pension provision will of course vary depending on each individual situation. For people who year after year have paid the maximum authorized amount (editor’s note: 7,258 francs in 2025 for people affiliated to a pension fund), this reform will not change the situation. On the other hand, for people who have failed to pay the maximum amount, whether through forgetfulness, ignorance of this possibility or because they could not afford it in certain years, this reform really deserves to be welcomed. This for several reasons.
“If you have the opportunity to regularly pay 200 or 300 francs per month, do it already. And if you later have the opportunity to contribute additional amounts because your financial situation allows it, you can always fill these contribution gaps.”
Which ones?
Firstly, it puts people who contribute to the 3rd pillar on an equal footing with those who have the possibility of making purchases under the 2nd pillar via their pension fund. Until now, an employed person affiliated to a pension fund which grants this possibility already had the possibility of making subsequent purchases within the framework of the 2nd pillar. If, on the other hand, they were affiliated to a pension fund that did not grant this possibility, the employee had no possibility of taking action – you were entirely dependent on your pension fund. With this reform, each person employed in Switzerland has at least the possibility in the future of making purchases within the framework of voluntary 3rd pillar pension provision. It is also a much more transparent solution: with your 3rd pillar account, you can know at any time the amount you have already contributed.
Secondly, from the customer’s perspective, the possibility of making subsequent payments from next year also allows for better adaptation to the life cycle throughout professional life. Take the example of someone who completes long studies and a doctorate: this person initially receives only a low salary during the years of preparing their thesis, which does not allow them to take advantage of the all the deduction possibilities provided for under the 3rd pillar. Then, it is possible that his salary will increase quickly, which would allow him to make retroactive payments for the 3rd pillar.
Thirdly, this possibility of carrying out redemptions is also an opportunity for intermediaries or advisors to have greater room for maneuver in the advice provided to their clients. They have more possibility of making corrections later to people who have contribution gaps in terms of pension provision, taking into account tax aspects, etc.
Overall, this reform also provides a much fairer solution for many people who would otherwise not have had the possibility of making purchases via their pension fund. It is also more adapted to the fact that many people do not have linear income during their professional life. This may be the case for people who are active in very cyclical fields of activity, such as tourism or industry for example, and whose activity rate can vary greatly from one year to the next.
“Inflation has also fallen sharply in recent months, in Switzerland in particular, which means that the real returns obtained with certain investments are not so unattractive.”
Is there not a risk that people who can only pay small amounts into the 3rd pillar – for example, 100 francs or 200 francs per month – will say to themselves that it is not worth paying take care of it this year, since they will in any case be able to make up for it later by making subsequent payments?
It would be a mistake to think like this. On the one hand, because there are still certain restrictions that will be imposed, in particular the fact that subsequent redemptions will be limited to the last ten years. On the other hand, we can interpret this situation in the opposite way: if you have the possibility of regularly paying 200 or 300 francs per month, do it already. And if you later have the opportunity to contribute additional amounts because your financial situation allows it, you can always fill these contribution gaps. Additionally, the earlier you start, the more you benefit from the compound interest effect.
In Switzerland, interest rates have fallen constantly throughout 2024. Some even fear a return to zero or even negative rates in 2025. Is this a concern for your clients regarding the future income from their savings?
When it comes to savings and retirement planning, some people look at the returns obtained only in nominal form. This is a mistake, we must always compare the nominal interest with the level of inflation which makes it possible to determine the evolution of purchasing power. Currently, some people see interest rates falling and say that it is no longer so attractive to put their money in a savings account. However, inflation has also fallen sharply in recent months, in Switzerland in particular, which means that the real returns obtained with certain investments are not so unattractive.
If interest rates fall to near zero in 2025, will we not have to consider other investments than savings accounts?
This each time depends on the client’s age, individual situation and risk tolerance. Generally speaking, the younger the people who contribute, for example if they are under 35, the more volatility they must accept. From the age of 50 or more, the opposite prevails. Now, for people who don’t want to worry about having to adapt their portfolio during its life cycle, we offer the option of doing it automatically, by adapting the composition of the investments at regular intervals. For example, by gradually reducing the share of shares within a portfolio or pension fund depending on the age of clients.
Related News :