Where’s the best place to keep 3a assets: in a fund or an account?

A key factor is how much risk investors are willing to take. A normal 3a account provides a capital guarantee, which means that the paid contributions remain safe and aren't exposed to fluctuations on the capital market.

Long-term investment

3a investment funds invest contributions in securities, such as equities or bonds, whose values may fluctuate sharply. That’s why it’s important to opt for the longest possible investment horizon. This enables you to cancel out temporary losses over time.

An investment horizon of at least five years is advisable. However, if the portfolio has a high equity proportion, the investment horizon should ideally be a minimum of ten years.

Opportunities for higher returns

There are two major benefits to 3a investment funds: firstly, they provide an opportunity to generate higher returns than leaving your money in a retirement account. Depending on the chosen investment strategy, people who invested in a fund in 2019 may have generated annual returns of up to 6%.

By contrast, the average interest rate on 3a accounts was recently as little as 0.47%.

Secondly, funds reinvest returns back into the fund rather than paying them out. This enables investors to benefit from compound interest. That applies to 3a accounts too.

All a question of timing

Whether investing in a 3a investment fund is the best option for you is also a question of timing. If you are about to retire or want to buy your own home using third-pillar assets in the near future, it's better to leave your assets in your 3a account. If not, you may risk incurring losses because the value of the retirement fund is lower on the payout date than it was when it was purchased.

Determine your appetite for risk

By contrast, a fund solution represents a good option for longer-term investment. Investors can decide for themselves how much risk they are willing to take.

Cautious investors are advised to opt for a conservative fund with a low equity allocation, e.g. 25%. Bolder investors may consider a fund with a slightly higher equity allocation, say 45%. Almost all banks also offer funds with equity allocations of 75% or more.

Compare offers

The fees on 3a funds are generally lower than those of more traditional investment funds. However, it's still worth comparing offers in order to optimise your net return. Migros Bank, for example, doesn't charge investors commission on purchases or sales of retirement funds, nor does it levy custody account fees.

Whichever investment option you choose, paying into the third pillar is always worthwhile. Both accounts and third-pillar funds enable you to deduct contributions on your income tax return, thus earning a "guaranteed" return.

Isabelle von der Weid is a pension expert at Migros Bank.