2nd Pillar - choose contribution %

Banks, Insurances & Third Pillar
13

Is this an option or an obligation? If it is an option this is interesting that somebody is willing to forgo any potential gains from RE in the coming years…(unless compensated for the option)…

Another option could also be to take a Lombard against your shares so you stay invested. Based on current levels assuming you have dividend distributing ETFs the dividends should cover at least portion of the costs. But of course this entails even more leverage with possibilities of margin calls so extra caution may be warranted…

14

I suggest to look for the funds with the lowest opportunity cost (alternative use of money). For example if your 3 pillar is in 100% equities if you withrdaw that it will “cost” average ~7% over the long term. If your 2nd pillar is earning (say) 1% it would be cheaper to use that. Note it may also be possible to pledge 2 or 3 pillar so that they can keep working for you.

Of course you need to make a sense check on your overall leverage and asset allocation

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15

Here too, the 3-year rule will apply to the voluntary portion. The compulsory contribution is 7%, 10%, or 15% (depending on your age) split equally between you and your employer. If, for example, your pension fund/employer gives you the option of contributing 15% instead of 10%, the excess 5% is a voluntary contribution. As such, the 3-year rule will generally apply to benefits accumulated from that 5%.

This is a simplified example, as some pension funds have fairly complex structures for combining and dividing compulsory and voluntary benefits. But it clarifies the point that making voluntary contributions is not normally a useful strategy if you plan to withdraw all your benefits in the near future.

If, on the other hand, you want to use your pension fund for the “bond” portion of your portfolio, having the option of making higher contributions could be beneficial.

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16

There’s something I don’t understand: if you choose 15% and they still pay 6.5%, wouldn’t your employer be paying less than the 50% share mandated by law?

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17

The 50% mandated by law only applies to the compulsory contribution, not the voluntary portion. Some employers pay more as an employee benefit.

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18

We have a verbal agreement with the current owner that he sells us the house in 2024 for 900k. He is the neighbor of my in-laws and knows my fiancée’s family 20+ years and would like to sell us his house to make sure it goes to good hands, as he does not have kids who want it. We’ll then invest another 450k in renovating it. I realize this is a once in a lifetime opportunity, as the property is easily worth 300-400k more in it’s current state in comparison to what he offered it to us (870m2 plot, 180m2 living space, 15min from Zug, canton AG). I will try to get this deal into a written agreement (probably a “limitiertes vorkaufsrecht”), however do not want to pushy with the current owner, since it’s all hanging on his goodwill.

My 3rd pillar is VIAC Global 100, so yes fully in equities. Would probably want to keep it there, if possible.

Do you have a view on pledged vs. withdrawal for 2nd pillar? Is there any major downside to that? Historical performance was 2.55% for my PK, so more then the interest costs of a 10Y fixed mortgage. My pension fund does not reduce insurance services when pledged, and allows 100% of the value to be pledged.

I don’t think this is the case, but I will enquire with my pension fund.

19

correct, I’m in the 7% BVG age bracket, where my employer has to contribute 3.5%, but they voluntarily already pay more, i.e. 6.5%

20

I would always go with pledging instead of withdrawing if possible. You save on withdrawal taxes and like you said: better to have 2.5%/year taxfree with the assets in the pension fund than saving 1%/year or less on interest. The issue is: if you bring in 10% cash and pledge the rest, your mortgage will be 90%. So they will ask for a much higher salary.

Lets assume you buy something for 1 million, have 100k in cash and 200k in your pension fund. As pledging your pension fund isn’t regarded as amortisation, you’ll end up amortisizing from 90% down to 66.6% instead of 80% down to 66.6% within 15 years. So to compare the “Tragbarkeit”:

Withdrawing 100k from pension fund

  • 40k interest
  • 8.9k amortisation
  • 10k maintenance

Pleding your pension fund

  • 45k interest
  • 15.6k amortisation
  • 10k maintenance

So you’ll need 212k salary instead of 177k to get the mortgage (I ignored assets and other factors that might be considered by the bank).

You already mentioned that they request 30% assets in order to get the mortgage. So pledging probably won’t be even an option for you.

5 Likes
21

@Cortana Interesting, I always thought that you have to take the loan down to 66.6% of the value of the house + any additional collateral. Based on my understanding and using the figures from your example, if you have not pledged anything you should bring down the loan to 666k but if you have pledged 200k then you should bring the loan down to CHF 792k (66.6% of CHF 1m+200k), or I am missing something?

22

If you will use indirect amortization then the 3-year freeze is not an issue. It only applies to withdrawals.

23

Noted, so pledging would be beneficial, as long as the Tragbarkeit is there. If I understand you correctly, pledging allows me to increase my total loaned value up to 90% and will increase the 2nd tranche from max. 14% to max. 24% (which needs to be amortized). The bank lends me more money, therefore interest and amortization increase (and I’m higher leveraged…:smiley:).

This is not likely the case for us, as we are planning to have children by 2024 so she will work only part time. Our income will be conservatively around 200k/year, depending on career progression and if the bank will factor in bonuses. So yeah, we need to bring in 30% capital, to achieve Tragbarkeit, so pledging is off the table.

So the strategy would be:

  1. withdraw complete 2nd pillar (165k, 12% of total)
  2. bring another 235k in cash (further 17% of total)

End up with 29% Eigenkapital. And don’t touch 3rd pillar.

3 Likes
24

That’s how I would do it. As long as there are no negative side effects in terms of disability insurance etc. with your pension fund. Usually it’s linked to the salary and not to the assets, at least with good pension funds.

@Moustakalis
With most banks this is only true if we talk about collateral outside of your pension fund. So for example: 10% cash and 23.4% pledged 3a account will lead to 0 amortisation requirement.

Main reason: pension fund as collateral is worthless if the person dies and is married or has kids.

25

If at all possible, it might be a good idea to withdraw one of your two second pillars and leave the other untouched. That way, if you want to buy back into the 2nd pillar later and get tax deductions, you can do it in the untouched one. Note that the person must be working at the time when you intend to do a buy back for it to be possible.

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26

I just made some calculations. Assuming margimal tax rate of 25%, withdrawal tax rate of 5%, 2% pension fund yield, 6% IBKR yield (pre-taxes). It makes sense to contribute more into the 2nd pillar for the first ~10 years, but afterwards you would be better off if you always invested those contributions in IBKR.

Conclusion: Increasing contribution rate or doing buy-ins makes sense if you withdraw it in the next 10 years. So either as a young adult planning to buy a property or 10 years before retirement.

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27

my pension fund bases insurances on salary, not capital, so I should be fine

This is the plan, I will only withdraw my second pillar and not the one of my fiancée. Partially because she does not have a lot in it, and because she will contribute most of the cash for the purchase, so we own the home 50:50 between us. Unfortunately, the max buy-in will be pretty low, once she reduces to part time work.

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28

Here too, the 3-year rule will apply to the voluntary portion.

Don’t know if it’s a general rule but here the Pensionskasse SRG SSR states the opposite.

Im Gegensatz zu persönlichen Einlagen unterliegen sie im Falle eines späteren Kapitalbezuges nicht einer dreijährigen Sperrfrist.

Also, one question still unanswered for me about the voluntary contributions: are they attributed to the mandatory portion or extra-mandatory portion of your pension fund? I would suspect it’s the latter, but is that the case for all pension funds? Anyone know of the legal basis for that matter?

Sorry for the formatting, first time posting.

EDIT: I found this about employees of the Bund:

Art. 36a Sondersparguthaben
1 Für jede versicherte Person, die freiwillige Sparbeiträge nach Artikel 25 leistet oder deren Arbeitgeber einen zusätzlichen Sparbeitrag nach Anhang 6a Ziffer I leistet, wird ein individuelles Sondersparguthaben gebildet.
2 Das Sondersparguthaben setzt sich zusammen aus:
a. den freiwilligen Sparbeiträgen nach Artikel 25;
a-bis. den zusätzlichen Sparbeiträgen des Arbeitgebers nach Anhang 6a Ziffer I;

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29

I‘m not sure about the laws around this, but I enquired with my pension fund and they confirmed that the extra contributions are not impacted by the 3 year rule.

We‘ll be signing the purchase contract at the notary on Friday (the 13th, nonetheless…), if everything goes as planned. Price moved up to CHF 1.0M, which is still fair, all considered. Wish me luck that the deal goes trough.

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30

Thanks for bringing that to my attention. I’ll need to look into that. I just reviewed the BVG law, and the 3-year rule only appears in the law governing limitations on voluntary purchases of benefits (article 79b). The law governing limitations on insured salaries (article 79c) does not mention the 3-year waiting period. I have to research the topic more thoroughly, but looking at some pension fund statutes (like the ones you linked), it would seem that voluntary benefits accumulated by raising the insured salary above what is compulsory are not subject to the 3-year waiting period. That would be good news if you want to save on a tax-privileged basis and withdraw the savings in the near future, and you have an accomodating employer and pension fund.

31

Article from Finpension might be helpful. Topic is 3 year blocking after voluntary purchase and includes a link to a ruling on the topic (I have not read the ruling, in German)

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32

Helpful. The question here though is the difference between “Einkaufe” (voluntary payments in addition to salary contributions paid directly by you to your pension fund to close gaps) and the “pillar 2b” (the portion of salary contributions transferred by your employer to your pension fund which exceeds the compulsory portion). In the case of Einkaufe, it is clear that there is a 3-year hold on withdrawals. But it seems that the 3-year waiting period does not apply to pillar 2b assets. I’ll dig into that and get back to you.

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