3 Reasons Why Pillar 3a is Worthwhile for Young People

Upon reaching the age of eighteen, one not only gains the right to learn to drive, but from this time on, one can also contribute to Pillar 3a. But is it worth starting to save for private retirement provision so early?

Most young people aged 18 to 25 are still in training. During vocational training, as well as in studies, income is low. Understandably, therefore, it is not the highest priority for young people to invest in private retirement provision. After all, the small amounts hardly make a difference and there is still plenty of time to top up Pillar 3a – but is this consideration correct? These 3 reasons speak for investing in private retirement provision early on.

Generate returns

Even investing small amounts in Pillar 3a can already be worthwhile. On one hand, a series of small contributions accumulates to a considerable savings, and on the other hand, the contributed amounts yield a return. However, before you decide on a savings method, you should thoroughly inform yourself about the various options. Although no negative interest is charged on pension accounts, the returns on bank accounts in the current economic situation are not exhilarating. However, it can be worthwhile to invest in a Pillar 3a investment fund. This is characterized by the fact that a part of the fund (max. 50 percent) is linked to stocks and therefore generates a higher yield.

Save taxes

An important reason why contributions to the third pillar are worthwhile is the resulting tax savings. Contributions to Pillar 3a can be deducted from taxable income, at least up to an amount of CHF 6826 for non-self-employed persons. In addition, the accumulated capital is exempt from wealth tax during the lifetime of Pillar 3a. The actual size of the tax saving largely depends on the canton of residence. In high-tax cantons, the savings rate is usually higher than in cantons with low tax rates.

Find out which are the most tax-favorable cantons in Switzerland.

Gain experience

Last but not least, it is also worthwhile to invest in Pillar 3a to develop a sense of responsibility and gain experience in retirement provision. By making early payments, young adults learn to take care of themselves and to handle money responsibly. In addition, they find it less difficult to pay larger amounts into private provision later on if they are already practiced. Those who invest in a Pillar 3a investment fund and follow its development also gain an understanding of how stock markets work.

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