(Disclosure: Some of the links below may be affiliate links) I have talked in detail about the retirement system in Switzerland, the so-called three pillars. However, I have not yet talked about a not well-known part of this system: pillar 1e. In this article, I want to cover in detail pillar 1e. We will see what it is all about, who can profit from it, and more! Pillar 1e In Switzerland, most people are aware of the existence of the three pillars, even if many people are not entirely knowledgeable about them. However, most people do not know about the 1e pillar. The reason is simple: it is reserved for people with a very high salary. Let’s see how. While the name is Pillar 1e, it is actually closer to the second pillar than to the first pillar. In fact, the pillar 1e covers the salary
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(Disclosure: Some of the links below may be affiliate links)
I have talked in detail about the retirement system in Switzerland, the so-called three pillars. However, I have not yet talked about a not well-known part of this system: pillar 1e.
In this article, I want to cover in detail pillar 1e. We will see what it is all about, who can profit from it, and more!
Pillar 1e
In Switzerland, most people are aware of the existence of the three pillars, even if many people are not entirely knowledgeable about them. However, most people do not know about the 1e pillar. The reason is simple: it is reserved for people with a very high salary. Let’s see how.
While the name is Pillar 1e, it is actually closer to the second pillar than to the first pillar. In fact, the pillar 1e covers the salary higher than 1.5 times the maximum coordinated salary (86’040). So, the pillar 1e will cover the salaries between 129’060 CHF and 860’400 (maximum covered by the second pillar). Therefore, if you have a salary lower than that, you cannot profit from the pillar 1e.
Another reason people do not know about it is that employees cannot choose to invest in the pillar 1e. It is up to the employer to provide a 1e pillar for their employees. So, even if your salary is higher than this limit, your employer would still have to enroll you in such a plan for you to profit.
It is important to note that people with a 1e have both a 1e and a second pillar. If you are eligible for a 1e plan, only the part of your salary higher than 129’060 CHF will contribute to the pillar 1e. The rest will go as usual to the second pillar.
For these two reasons, most people do not know about this pillar.
Advantages of the 1e
While not well-known, this pillar is very interesting for employees.
Indeed, employees enrolled in a pillar 1e can choose their investment strategy. Where most second pillar pension funds are extremely conservative and have extremely low returns, a pillar 1e fund can be much more aggressive and yield nice returns in the long term.
This can make a major difference in the long-term for your retirement assets.
This also makes the 1e pillar very interesting for additional contributions to the second pillar. With the second pillar, additional contributions are not great since the returns on (most) second pillars are really bad. But if the money is invested heavily, the second pillar contributions become as interesting as the third pillar contributions, but with a much higher limit per year.
On the other hand, since your assets are invested, there is no guaranteed interest rate. So, not only are the returns not guaranteed, but you can actually lose money in your retirement assets. So, you need to choose your investment strategy according to your risk capacity and asset allocation.
There are also advantages for employers since this could make them more attractive on the job market.
As of 2020, there was about 5 billion CHF managed in Pillar 1e funds in Switzerland. While these plans have existed since 2006, they only started becoming popular since 2017 because, before that, the pension funds had to bear the losses, making this plan unattractive for fund providers. But now, employees are bearing the losses (and profits, of course), so more and more providers are offering such plans.
Other differences
There are a few other differences between the second pillar and the 1e pillar.
In most cases, you will not be able to get a pension from pillar 1e. You will only be able to get a full capital payment. Other than that, the rules for withdrawal (and early withdrawal) are the same as for the second pillar.
An important difference is that assets are segregated per investor (or sometimes per strategy). In a standard second pillar, the funds are put together, and the fund is paying for retirees with the money coming from the current employees. In a pillar 1e, the money is entirely for you. You only pay the investment fees. This is a great advantage since you can profit more from the stock market’s performance and choose your strategy.
Example of pillar 1e: yourpension
Finpension is a great company! They already have the best third pillar and the best vested benefits accounts. And they also have a 1e pillar offer: yourpension. In fact, they started with the 1e, continued with the vested benefits, and finally went into the third pillar.
They have a great pillar 1e offer as well. They let you invest in one of 10 different investing strategies. Some are very conservative, while others are very aggressive. This is is great for young people and for people close to retirement. And as usual, they are using index funds to minimize the fees.
With yourpension, your money is entirely segregated from other employees of the same company. That way, you can use a very conservative (yet more aggressive than a bad second pillar) strategy and profit even if some of your colleagues are more aggressive. And the contrary is possible too: you can be aggressive and profit even if most of your colleagues are conservative.
So, if you are looking for a second pillar 1e for your employees or want to recommend one to your boss, yourpension is very likely a great choice!
Conclusion
Overall, the pillar 1e is a great option to improve the returns on your second pillar. The main problem is that it is only offered to a tiny portion of the Swiss population. First, you need a very large salary to enroll. And second, it is still up to your employer to enroll its employees. You cannot enroll by yourself.
I believe that this kind of pillar should be offered to many more employees. And we should be able to enroll by ourselves like we choose the third pillar. But I doubt it will ever change. (And maybe I am salty because I do not have access to tone).
If you can enroll in such a plan, I believe it is a great opportunity if your risk capacity allows it.
With that, you know all there is to know about the pillar 1e, the least well-known part of the three pillars system.
If you have access to a 1e pillar, I would love to hear of your experience with it.