Lately, I receive more and more emails from readers who want to know if closing their 3a pillar life insurance is a good financial decision, in order to stop the hemorrhage that this type of financial product creates in their savings. Instead, they want to invest their retirement money in an optimal pillar 3a such as the VIAC Global 100 (our favorite among Mustachians).
But all of them hesitate when they see that they will lose thousands or tens of thousands of CHF by closing their pillar 3a life insurance…
Having been a victim of this rip-off (sorry, can’t call it anything else!) twice… I can only understand their upset and questioning.
It always starts like that:
Hi MP! I have a question regarding my life insurance policy with Helvetia. It is a guarantee plan, linked/restricted pension (pillar 3a). I started investing CHF 6'768 per year since 2016, and the contract ends in 2051. Part of the contract is invested in incomprehensible derivatives, but at least it’s not all sitting in a savings account earning nothing.
The guarantee in case of life amounts to CHF 173'020. According to your advice, I asked what the surrender value would be and this is what they told me: “Surrender value = CHF 15'378.87, and the credit balance of the cash account = CHF 564.00 (total payment in case of surrender: CHF 15'942.87)”
Since I have already paid CHF 40'608, that would mean that I would lose more than half of the amount invested… so I wonder if it’s really worth closing this 3a pillar, and transferring the surrender value to a VIAC pillar 3a account with the Global 100 strategy. What do you think?
And my answer is always the same: trust only the math and the data, and definitely not your human aversion to losing money.
Keep your pillar 3a life insurance?
Luckily, the insurance company of the reader above provided him with a document showing different possible scenarios of the surrender value of his 3a pillar life insurance at term (i.e. in 2051):
- Guaranteed minimum: CHF 173'020
- With a return of 5.38%: CHF 497'532
- With a return of 6.35%: CHF 612'052
- With a return of 7.06%: CHF 714'627
I specify that these figures are valid as long as the pillar 3a life insurance premium of CHF 6'768 is paid every year until 2051.
Or change to a VIAC pillar 3a invested in a Global 100 strategy?
The other option of our reader is to terminate his Helvetia contract, recover only the surrender value, and invest this amount (as well as all future premiums) in a VIAC pillar 3a invested in global ETFs (via the VIAC Global 100 strategy).
If we put the numbers down, we get:
- End of 2021
- Withdrawal of the Helvetia pillar 3a surrender value of CHF 15'942.87 (i.e. a loss of CHF 24'665.13, as CHF 40'608 - CHF 15'942.87)
- Termination of the Helvetia pillar 3a
- Beginning of 2022
- Opening of the third pillar 3a at VIAC
- Transfer of the surrender value of CHF 15'942.87 to VIAC
- Annual payment of CHF 6'768 from 2022 to 2051
I put all this data into my “Compound Interest Calculation” spreadsheet, and here’s what comes out with the same stock market returns as the Helvetia pillar 3a simulation:
- Guaranteed minimum: CHF 0 [1]
- With a return of 5.38%: CHF 797'074
- With a return of 6.35%: CHF 1'002'005
- With a return of 7.06%: CHF 1'188'489
[1] If you really have CHF 0 left in 2051, you’ll have other things to worry about, like a World War III, and nothing will go right. In that case, I don’t think your 3a will be a big concern. In a more balanced world where you would have saved CHF 212'214.87 (15'942.87 + 6'768 x 29), and where you would retire in 2051 in the middle of the biggest stock market crash of the 21st century, one could imagine that your 3rd pillar VIAC would be worth only half or even a quarter (in the worst case) of your invested amount, i.e. about CHF 111'000 (if divided by 2), or CHF 53'000 in the worst case scenario divided by 4.
The first time I realized what a rip-off a pillar 3a life insurance is... (photo credit: Andrea Piacquadio from Pexels)
Conclusion
The answer to the question “to terminate my pillar 3a life insurance or not” is clear to me by looking at this table:
| Data as of 2051 | Pillar 3a life insurance Helvetia | Pillar 3a VIAC Global 100 | Difference if VIAC choice |
|---|---|---|---|
| Guaranteed | CHF 173'020 | CHF 0 (or rather CHF 53'054) | -CHF 119'966 |
| Performance 5.38% | CHF 497'532 | CHF 797'074 | +CHF 299'542 |
| Performance 6.35% | CHF 612'052 | CHF 1'002'005 | +CHF 389'953 |
| Performance 7.06% | CHF 714'627 | CHF 1'188'489 | +CHF 473'862 |
If I were the reader who sent me the above e-mail, I would switch to VIAC with a pillar 3a invested in the Global 100 strategy and terminate my Helvetia pillar 3a “Guarantee Plan - Linked Pension” with a big smile.
I would like to clarify an important point: I would take this decision because my risk profile is quite high, and I can sleep very well with all my 3rd pillar invested at 100% in the stock market. This knowing that in the worst case I could always count on my 1st and 2nd pillar, and especially (!), on my ability to bounce back and generate new income.
And I can understand that this is not the case for everyone, and that some people need more guarantees regarding their private savings for their retirement.
And you, have you ever been ripped off by taking a mixed pillar 3a linked to life insurance? If so, what will you do after reading this article?
Header photo credit: Mikhail Nilov from Pexels
Is any 3rd pillar a good option? Your money are anyway stuck there until retirement (or in case you leave Switzerland for good, or buy an house..) and the taxes you saved while you increase the 3rd pillar are anyway due at the moment of the withdrawal. Isn’t better just to put those money in an global index found? You gain flexibility (withdrawal anytime you want in case you struggle) and it might be cheaper to maintain then any other 3rd pillar
Hi, can you offer any advice on Pillar 3b? This has been suggested to me recently as an option in addition to pillar 3a, but I can't find any information on this on your blog - I would be really interested in your views on this. Thanks!
Here some valid VIAC codes :) you pay no administration fee on your first CHF 1’000.00 pension assets - for a lifetime!
YBTnGiX
GZA7ecZ
tXuT7X9
Dear MP,
How many times I have moaned thinking about the worst financial decision of my life. Exactly, a 3a pilier life insurance (why is this even legal ? :( ) . It's already been 3 full payments and I am wondering if it makes sense to keep the paying to the minimum (around 600.-/year and start with Viac with 6000.-/year or so. I guess that I'll have to do the math, but AXA has not yet given me the information that I want.
As you've said making the math does remove part of the pain of accepting loosing half of your 3a savings... Thank you, I'll follow your advice.
This is not an equivalent. It is an insurance after all. It gives you a piece of mind in case you get disabled or die. So you should at least subtract the cost of equivalent life insurance. If you are the only income producer in the household you should definitely think of some sort of life insurance, so that your family is taken care of in case something happens to you. I know I sound like an insurance agent right now, but this is how I personally feel. Another point is that you can use the guaranteed premium as part of your mortgage payment, so in a short term you might be able to afford a better house, just something to consider as well.
Insurance is ok but don't couple it to a savings plan. Pillar 3a or just investing is a much better choice. For such insurance savings deals, almost everything is bad: the huge finder's fee, the bad investment choices, the lack of performance, the penalty on monthly payments and the unrealistic returns above 4%. I've also been ther and done it. Total rip-off!
hi. I just wanted to share this with a friend, who only speaks German. Unfortunately, the title in German suggests the opposite: You should immediately make a life insurance. It is translating "close" as "abschliessen" instead of "kündigen".
Thanks for the comment, just go back to the blog and first blogpost, it's all fixed now 😅
Perfect. Thank you!
My story has started (ended thank God! 🙏🏼) with exiting my bounded life insurance here:
https://forum.mustachianpos...
Transferring to VIAC is a no-brainer after these calculations ☝🏼👀
I've moved all my 3rd pillar to VIAC 3 years ago and never looked back again - and gained 20% (ok, also thanks to timing). Kind of no brainer... I'd suggest anyone to join.
If you decide to do so, these codes will save you management fees on the first 500chf invested:
pC8ZGLA
GCX2xgC
VCbeGsU
Ciao a tutti! Get your first 1000 CHF managed for free on Viac! 🙌 Simply use one of my freshly backed referral codes: NfTJ6DT QGuwMQg wGkezgV Thank you and have a fantastic day ahead!
Here some more VIAC codes in 2023. You permanently pay no administration fees on your first CHF 1’000.
JhbrTFH
hSFEFZS
I know that this post is a couple of years old by now, but still relevant. I, a newly minted expat in CH, unknowingly took one of these policies with Baloise. Google reliable informed me I had just thrown a lot of money away. Thankfully, I had only paid one year’s premium of CHF6k+. After seeking after and trying to get out of the contract (unsuccessfully), I agreed with Baloise to pay the minimum of 1k per year. Then the plan is to close the account at a later date, since my losses would be significant given I have only just opened the account. Is this a sensible approach, since I would still benefit from the insurance element of the product? Or do I need to just cut my losses and run?
Cut your losses and run. Better earlier than later. At least that's what I did (and would do today still).
HI, I am an expat who moved in CH in 2016. In 2021 I made this mistake and signed with a life insurance. I have two in place that will end one in 2041 and the other 2042. I am 48 years hold and still 17 years of work (in theory). I did the calculation based on what I can retraive vs what still need to pay.. Though, it looks I will still get a benefits. Of course much less considering I started late. Would you still suggest me to resign from my life insurance? thanks a lot
Welcome to the club... ^^ Maths do not lie. And it's rarely a good solution to keep such a scam product.
Hi, your compound rate calculator is a scam - it does not include any management costs, and also VIAC has a management cost, eg. VIAC Global is a 0,40% management cost.
i don't question your logic of switching from helvetia to viac, but if you share an advice to switch, make sure you compare apples to apples, and don't fake the VIAC returns by ignoring the TER on VIAC funds.
Once the real numbers are included the comparisons might look different , eg. follow the steps: 1 - my 3a at another insurer (not sharing names on purpose) has an all in TER of 0.47%, with 90% in equties on a global investment fund ... and with guaranteed amount of 200k. Surrender values basically reflect my savings after year 7 (before it's a loss, but for me acceptable, %-wise it's a lot compared to saved amount, but absolute numers it's 5 - 10k loss)
2 - Viac global 100 TER is 0.40% - that's 0.07% cheaper than insurance. In my scenario (i'm a foregner and started doing 3a late at the age of 37) that's ca. 5k - 10k more in VIAC that with the insurer at the end of contract... not a material difference.
3 - however, the guaranteed amout in VIAC is 2.5k per 10k invested.... i would need to have 800k in their account to have same guaranteed amount as with the insurance. Being the only bread-winner for tha family, i go with the insurer, because the gives my family security if i die.
= it's worth for me to stay with the insurer, i'm happy with the 10k less return, for the increased safety.
Funds performance is of course another thing....
People - don't believe general statements that one or the other solution is better or worse. always do the math yourself!
Hey there :) I feel scam is rather strong, but hey, your perception! Mine would be an "error" at most.
Now to the fact: I'm actually not sure Helvetia numbers removed their management fees and other TERs from their scenarios. I will check with my reader, although I fear Helvetia won't provide much more transparency, but worth a try! Yet, anyway, the big difference here comes from the performance in the end.
As for the life insurance part, I'd recommend separating it from the 3a, no matter what. It's been proven time and again that insurers just push you what makes them bigger bonuses...