Interest rate decision of the SNB

As expected, the Swiss National Bank (SNB) cut the SNB policy rate again today. This decision will not only impact interest rates on savings and retirement accounts, but also make securities even more attractive.

The interest rate cut makes securities investments virtually indispensable for anybody interested in taking advantage of the potential offered by interest and compound interest in their retirement planning. Now is the right time to rethink your investment strategy for the 2nd and 3rd pillar.

Specific effects on your retirement assets in the 2nd and 3rd pillar

The new situation is clear: a lower SNB policy rate is also putting pressure on interest rates for pension fund and pillar 3a assets. Even the current BVG minimum interest rate of 1.25 percent will be up for discussion again. Lower key interest rates put a damper on the accumulation of wealth and, in the long term, will negatively impact pension benefits at retirement.

What can you do about it?

As an alternative to a purely cash-based solution, the legislator is providing the option to hold securities as part of your retirement assets. This applies to both vested benefits and pillar 3a accounts.

Anybody making targeted investments in securities will benefit from higher investment returns in the long term and take advantage of this opportunity to close any gaps in their retirement savings.

For more information, see the focus article entitled “Pillar 3a: actively managed for attractive retirement planning”

This aspect is also likely to encourage a trend that we have been observing in companies for a while now: growing popularity of tailor-made pension solutions among senior executives and entrepreneurs. An individual investment strategy suitable to a person’s risk capacity and appetite can be pursued within the extra-mandatory occupational pension plan. With securities based extra-mandatory pension plans, investors can take into account the capital market situation and their own needs.

Four strong arguments in favor of investing your retirement assets

1. Compound interest effect

Investments in securities benefit from compound interest over the long term since investment income is systematically reinvested. This noticeably increases your return on investment and your retirement benefits. Due to the effect of compound interest, the long-term difference between earning a return of one percent or three percent per year is substantial.

2. Tax advantages

Contributions into the 2nd and 3rd pillars reduce your taxable income. Furthermore, none of the income (interest and dividends) in the pension portfolio is taxed until it is paid out—meaning that the returns work for you tax-free.

3. Individual investment strategy

With a securities investment, an investment strategy is defined based on your personal risk profile. It can be a low-risk strategy or a dynamic portfolio, or anything in between. Our experts will be happy to help you select the right type of investment.

4. Holistic approach to investments

In a low-interest-rate environment, solid asset diversification—even beyond your retirement assets—is critical for long-term wealth accumulation. Broad-based investments in asset classes such as equities, bonds, real estate or alternative investments help generate attractive long-term returns that exceed the interest rates offered in cash accounts.

Conclusion: Act now to boost your retirement savings

The SNB’s interest rate cut presents challenges—but can also be looked at as an opportunity to actively shape your retirement savings. Investing excess liquidity from your retirement accounts into securities also allows you to profit from capital market developments. Over the long term, this additionally protects your assets against inflation—and you can take advantage of the tax benefits year after year by making regular contributions into the 2nd and 3rd pillar.