Building up a pension – a comparison of banks and insurance companies

What is the best method of achieving your savings objectives?

When choosing a suitable provider for a pension solution based on Pillar 3a, prospective clients are quickly faced with the question, bank or insurance company? 

In principle the Pillar 3 permits two forms of pension provision: the pension account of the banking foundations and the insurance policy of the insurers. Neither a bank nor an insurer can offer all the advantages with no disadvantages, but, when compared overall, life insurance policies offer considerably more scope and configuration options than the various pension solutions from the banks.

Bank or insurance company – what are the main differences?

The main difference is actually to be found in the way the investor thinks and feels. Above all, investors should always follow their personal needs. For those who want to build up their private pensions there are some interesting options with both a banking solution and with an insurance policy, to secure their standard of living in their old age. All things considered, the two types differ in terms of security and flexibility for private retirement provision.

If you want flexibility you go to the bank. True?

Yes and no. A Pillar 3a bank account is not a bad choice for anyone who does not need to provide financial protection for a life partner or children and prefers not being forced into a savings plan or having to meet payment deadlines. Payments are voluntary and can be made at any time. But this flexibility also holds certain pitfalls. If you want to build up your private pension, you have to make payments regularly and systematically. All too often, bank savers do not have the necessary “savings discipline”.  Apart from which, it is not only banking solutions that offer flexibility. Modern insurance products permit virtually any conceivable modification in the course of the saving process, such as taking a break and reducing or increasing the premium.

If you want security you go to the insurance company. True?

Yes and no. If you want security and stability, the bank can also be the right place for you – at least with a classic savings account. In that case your deposits are secure and guaranteed up to CHF 100,000 in the event of bankruptcy. However, with this version you miss out on attractive returns.

If you want security but also returns, you are better off choosing a modern insurance solution such as the SmartFlex pension plan. In this case it is possible to split the premiums according to your own security requirements – into assets that are exposed to market fluctuations and are therefore profitable, and those that enjoy the security of an account. The financial assets of the security-oriented SmartFlex pension plan investment are part of the tied assets and enjoy unlimited protection in the event of bankruptcy. The financial assets of the profit-led investment are part of the special assets and are protected in the event of bankruptcy There are also various security options available, to reduce the investment risk.

A comparison of pension provisions: bank and insurer

(Savings account)
(pillar 3a fund)
(SmartFlex pension plan)
Return opportunities no yes
earnings opportunities thanks to equities and other investment categories
return-oriented capital: return opportunities thanks to equities
Guaranteed element
no guaranteed interest rate, only variable-rate savings deposits
no yes
security-oriented capital: variable and fixed interest rates
Financial market fluctuations no yes
for equities due to market fluctuations and for bonds due to interest rate changes
security-oriented capital: no exposure to market fluctuations
income-oriented capital: exposed to market fluctuations thanks to equities
Insurance cover no no yes
customized risk protection (e.g. death, occupational disability, premium payment exemption)
Security in the event of bankruptcy yes
up to CHF 100,000 (privileged)
to the extent of the current value of the fund units
security-oriented capital: 100 % legally guaranteed; income-oriented capital: to the extent of the current market price of the fund units.

The different versions in detail

1. Return opportunities

With the bank

If you save for the future in a traditional 3a savings account you currently have little opportunity to achieve any returns, as the interest rates are still extremely low. When saving with a Pillar 3a fund solution, clients can seize the opportunity of good returns and achieve price gains from equities or bonds, but they do bear a price risk.

With the insurer (with the SmartFlex pension plan)

The SmartFlex pension plan combines the security of a pension account with the opportunities of an equity investment, with which the capital can be systematically increased. The invested capital can be split into  a security-oriented capital element and a return-oriented capital element, and flexibly restructured. Thanks to investment in equities, the return-oriented capital not only offers attractive return opportunities – the investment profile can also be selected to suit your own preferences at any time without additional costs. And unlike a bank solution, there are no trading fees.

2. Security of investments in the event of bankruptcy

With the bank

Together with the vested benefits accounts, the deposits in the 3a area are privileged up to CHF 100,000 in the event of bankruptcy. The Pillar 3a fund solutions of the banks, on the other hand, are not included in their bankruptcy assets and are therefore not affected.

With the insurer (with the SmartFlex pension plan)

The deposits in the security-oriented capital are 100 % legally secured in the tied assets of AXA. Unlike with a bank, there is no upper limit of CHF 100,000. The deposits in the return-oriented capital of the tied assets are in turn secured to the extent of the market value of the equity shares at the time.

3. Susceptibility to financial market fluctuations

With the bank

Clients who rely on a bank savings account to save for their old age are indeed not exposed to market fluctuations, but nor can they benefit from stock market gains. Those who want to build up their private retirement provisions with Pillar 3a, relying on a bank’s Pillar 3a fund solution, can benefit from equity gains but do also bear a certain price loss risk.

With the insurer (with the SmartFlex pension plan)

While the deposits in security-oriented capital in the case of the SmartFlex pension plan are not exposed to any market fluctuations, value fluctuations are to be expected in the case of the return-oriented capital invested in the equity market. However, clients have the opportunity to take an active part in controlling their investment risks with various clever security options, such as hedging the returns, process management or manual restructuring.

4. Insurance coverage

With the bank

The pension solutions of banks, such as a savings account or a 3a fund solution, include no additional insurance protection, for example covering financial risks in the event of death or incapacity to work.

With the insurer (with the SmartFlex pension plan)

If you want to build up your retirement provisions and at the same time insure against risks such as death or incapacity to work, the SmartFlex pension plan is just right for you. Another factor in favor of this form of retirement provision is that in the event of long-term inability to work, the insured are exempt from paying premiums – AXA pays the premium. Your retirement capital continues to accumulate and your coverage remains in effect.

5. Fees

With the bank

Whereas saving for your retirement with a bank account primarily incurs costs for account management, retirement provision with a 3a fund solution from the bank may incur custody account fees, fund costs, as well as issue and redemption commissions on fund trading. 

With the insurer (with the SmartFlex pension plan)

With the SmartFlex pension plan there are contractual and investment costs.

6. Payment obligations

With the bank

If you decide to plan your private pension with a banking product you do not incur any payment obligations but you do run the risk that irregular deposits may jeopardize the rapid and sustainable accumulation of retirement savings. 

With the insurer (with the SmartFlex pension plan)

If you want to save for your old age, build up a private pension and prepare for retirement, and you choose the SmartFlex pension plan, you will benefit from a systematic savings model thanks to firmly agreed premium payments with a fixed contract period. This model also offers flexibility. For example, it is possible to pay in varying amounts in the context of Pillar 3a and to suspend payments temporarily.

7. Redemption

With the bank

If you want to accumulate funds for retirement with a bank savings account and withdraw cash from it again, in most cases you will have to pay a closure fee. 

With the insurer (with the SmartFlex pension plan)

When accumulating pension provision with the SmartFlex pension plan, the guaranteed redemption value is calculated from the accumulated contractual assets, minus the due costs.

SmartFlex: our offer in Pillar 3

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Frequently asked questions

  • What are the advantages and disadvantages of pension provision with a bank or an insurer?

    All things considered, solutions from banks offer greater flexibility, while pension solutions from insurance companies offer additional cover in the event of inability to work, disability, or death. Pension products such as the SmartFlex pension plan also offer the advantage of greater savings discipline as a result of defined monthly payments. 

  • What tax-saving opportunities are there in retirement provision with banks and insurance companies or a life insurance policy?

    Payments into a Pillar 3a pension plan – whether from a bank or an insurer – up to a total annual amount can in principle be deducted from taxable income. This also reduces the annual tax burden. So a Pillar 3 pension solution is an excellent instrument for reducing tax. 

  • I have no experience investing in equities. Why do many pension products include an equity element?

    Nowadays nearly all pension solutions include modules with return-oriented investments in the equity market. If you want to build up your retirement savings in the long term and you want to avoid a pension gap in your old age, you can hardly avoid equity investments. Ultimately, on average equities historically offer greater opportunities for returns than a savings account or bonds and are accordingly an attractive option for investors who want to generate returns. In the case of the SmartFlex pension plan there is the option to channel part of your premium payments into the fixed-interest security-oriented capital and the rest into the return-oriented capital, which is invested on the equity market. Investors can reallocate their money between their flexible security-oriented capital and their return-oriented capital at any time.

  • What do insurance companies offer in the area of private pension provision which banks do not offer?

    When accumulating retirement provision with a savings account or a 3a fund solution, banks only offer the management of the paid-in capital within the scope of the provisions of their respective account products, entirely in line with their core business. In addition to the possibility of accumulating capital, insurers also offer cover for various risks, for example with the AXA SmartFlex pension plan. With insurance products you can protect yourself against financial risks as a result of incapacity to work, disability, illness or death. 

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