When you start planning your retirement provision in Switzerland, one question often comes up: is it better to open a third-pillar savings account or opt for a life insurance policy?
Both options allow you to build up savings for retirement whilst benefiting, under the tied third pillar (3a) scheme, from tax advantages provided for by law. However, they work very differently.
One scheme prioritises flexibility in saving, whilst the other combines saving with financial protection.
How do you make the right choice? Discover the main differences between a savings account and a life insurance policy so you can choose the option best suited to your goals.
Two ways to plan for your future
In Switzerland, the third pillar allows you to supplement the benefits of the first and second pillars in order to strengthen your financial security.
There are two main ways to build up these savings:
- opening a savings account specifically for the third pillar with a bank;
- take out a life insurance policy under the third pillar.
Both solutions share the same objective: to plan for your future. However, they cater to different needs.
The savings account: a simple and flexible solution
The third pillar savings account works in a relatively straightforward way.
You make contributions in accordance with the terms set by your bank, within the limits laid down by law for the third pillar 3a.
Your capital is held in an account and earns interest, the rate of which depends on market conditions.
This solution often appeals to people who are looking for a high degree of flexibility in their contributions and wish to focus solely on building up their savings.
The main advantages
- simple operation;
- great flexibility in making contributions;
- access to various savings or investment options, depending on the institution.
Points to consider
A savings account is primarily designed to build up capital.
In the event of death, it does not generally offer the same protection as life insurance, and in the event of loss of earning capacity, only life insurance provides protection.
Life insurance: savings that also protect your loved ones
Life insurance goes further than a simple savings account.
It allows you to gradually build up capital for your retirement whilst incorporating cover designed to protect your financial situation and that of your family.
Depending on the policy you choose, it may provide benefits in the event of death or loss of earning capacity.
This dual purpose — saving and protecting — is one of the main differences compared with a bank account.
For many people, particularly when they’re starting a family, buying a home or looking to secure their income, this protection is a significant advantage.
Savings account or life insurance: what are the differences?
| 3a savings account | 3a life insurance |
|---|---|
| Building up savings | Building up savings and providing financial protection for the policyholder and their loved ones |
| High flexibility regarding payments, subject to the product’s terms and conditions | Scheduled payments to encourage regular savings (annual policy premium) |
| Little or no cover in the event of death or loss of earning capacity | Coverage may include benefits in the event of death or loss of earning capacity |
| Capital-focused solution | A solution combining retirement planning and protection |
| Suitable for people seeking primarily flexibility | Suitable for people wishing to plan for the future whilst providing security for their family. Premium waiver: in the event of incapacity to earn, the insurance company continues to pay the premium on your behalf |
Why are more and more people choosing life insurance?
Planning for retirement is not just about putting money aside.
As life goes on, your responsibilities change.
You may have a partner, children, a mortgage or people who depend on your income.
In these situations, financial planning takes on an extra dimension: protecting those who matter most to you.
Life insurance is designed precisely to meet this objective.
It helps you build up savings over the long term whilst, depending on the policy, offering financial security in the event of unforeseen circumstances.
This comprehensive approach explains why many people opt for this solution when they want to plan for their future with greater peace of mind.
Which solution should you choose, depending on your circumstances?
The best choice depends first and foremost on your goals.
If your main aim is to save
If your priority is to build up capital with great flexibility in terms of payments, a savings account may meet your needs.
You want to protect yourself and your family
If your loved ones depend on your income or if you want to strengthen your financial security, life insurance may be a particularly suitable solution.
Are you looking for a long-term approach?
Life insurance is also ideal for people who wish to build up their financial provision gradually whilst benefiting from cover tailored to the different stages of their lives.
Questions to ask yourself before choosing
Before making a decision, ask yourself:
- Who currently depends on my income?
- How would my loved ones be protected in the event of an unforeseen circumstance?
- Am I looking solely for a savings solution, or also for financial protection?
- Am I prepared to set up a regular, long-term savings plan?
- What are my plans for the coming years?
Answering these questions will help you identify the solution that best suits your situation.
Common misconceptions
“Life insurance only pays out in the event of death.”
That’s not true.
As a form of life insurance, this financial planning solution also allows you to build up savings to prepare for your retirement and may include other cover options depending on the policy, such as a waiver of premium or a lump sum in the event of death to protect your loved ones.
“A savings account offers the same protection.”
No.
A savings account and life insurance serve different purposes.
The former is primarily a savings solution, whilst the latter combines savings with financial protection.
“Life insurance is only for families.”
Not necessarily.
Anyone wishing to safeguard their ability to save in the event of loss of earning capacity and to secure their financial future may find life insurance beneficial, even before starting a family.
Frequently asked questions
What is the purpose of “premium waiver”?
In the event of an incapacity to earn an income (disability), the insurance company continues to pay the outstanding premium on your behalf until the end of the policy term. This means you will still achieve your financial planning goals even if you are no longer able to pay the premium yourself. This is one of the major advantages of insurance compared to a bank account.
Can I set up a third pillar in the form of a savings account or a life insurance policy?
Yes. Both options are available and cater to different needs.
Do both allow you to benefit from the tax advantages of the third pillar 3a?
Yes, provided they are taken out under the tied third pillar (3a) scheme and in accordance with the conditions laid down by law.
Is a life insurance policy just insurance?
No. In the context of retirement provision, it generally combines a savings component with protection cover.
Can you switch to a different solution during your lifetime?
Your needs change over time. It may be useful to review your situation regularly with a specialist to ensure that your plan remains suited to your circumstances.
In summary
A savings account and life insurance are two ways of building up your pension provisions under the third pillar, but they do not meet the same needs.
A savings account is primarily designed to help you build up capital with a high degree of flexibility. Life insurance goes a step further by combining savings with financial protection, to safeguard your future and that of your loved ones.
The choice depends on your personal circumstances, your plans and your need for protection. By taking the time to assess your priorities, you can build a pension plan that will support you at every stage of your life.
If you’d like to gain a better understanding of the various private pension solutions or discover the benefits of life insurance under the third pillar, Groupe Mutuel is able to provide information and personalised support to help you make an informed choice.
Pensions and savings
For the full picture, guides and checklists, read more at the Swiss Expat Guide
This article was written by Groupe Mutuel, a Swiss Starter Pack partner. It is general information, not advice.