2nd pillar OR NOT?

Banks, Insurances & Third Pillar
1

I will soon begin working for a company that is exempted from contributing to both 1st and 2nd pillars in Switzerland. It’s basically the same as being under the ANOBAG status/ as a salarié d’un employeur non tenu de cotiser.

While it is not mandatory for me to contribute to a 2nd pillar, I have found insurance companies that’d allow me to contribute to a 2nd pillar pension fund just as a normal employee in any Swiss company (but 100% with my own fund, with no employer contribution).

I am in my late 20s, and have the habit of saving regularly each month. I’m wondering if I should OPT to contribute to the 2nd pillar or not? What are the real benefits of having a 2nd pillar for me? How is it different from putting aside money by myself for my retirement, or maxing out my 3rd pillar (as an independent with a higher upper limit)?

Would be great to hear your thoughts! Thank you!

P.S. I must mention that I have a vested benefits account for the 2nd pillar I used to have working for other Swiss companies. So another benefit I could see right now is having a higher interest rate if I move this sum of money back to a 2nd pillar pension fund.

2

I guess you will have to check the legal framework, since the main advantage are the tax savings.

If it is the same than for a self-employed person, I would recommend to use a 3a solution instead, where you can use the low cost viac or finpension.

Otherwise second pillar is not much helpful in my opinion anyway (except if you want to insure yourself against invalidity or other on a tax free basis)

3

It‘s true that you can max out your 3rd pillar with a higher max (5x of „normal employee“ max. and 20% of salary max). This is no pension though. Advantage of 2nd pillar is if you go back to another employer with 2nd pillar and you retire (no lump sum) you get a higher monthly payout (if you exceed life expectancy). Return might be poorer though as you can‘t chose 2nd pillar solution if „normally“ employed.

Although you may be able to buy in later from your 3rd pillar. So I‘d to the 3rd pillar only

4

I prefer the flexibility of pillar 3a, especially now that VIAC and co. are available. Pillar 2 pension funds definitely also have their advantages, though, especially if you want the safety of a yearly income no matter how long you live. However, there is a risk of changes in regulations. E.g. lump sum withdrawal of your money may be restricted in the future.

You can open a VIAC vested benefits account and transfer that money there.

5

Thanks, @Patirou @MUFC_OK and @jay

I wonder if anyone knows whether the tax benefits one gets from contributions to the 2nd pillar and the 3rd pillar are the same? Or is one more beneficial to the other?

@jay In fact, I already have a VIAC vested benefits account. I know that funds saved in the 2nd pillar receive at least 1% of interest rates per year, whereas vest benefits accounts only offer interest rates similar to normal bank rates (i.e. 0.01% p.a.). In this sense, is a 2nd pillar pension fund more beneficial in terms of “return”? (if I don’t invest my money in the 3rd pillar)

6

Tax benefits are identical as you are reducing your taxable income in both cases.

If you don’t want to invest your 2nd pillar assets, it makes way more sense to keep them in a pension fund with minimum interest rate of 1%/year. There is nothing better in terms of risk/return ratio, probably even better than stocks in that regard.

If you want to invest it, the obvious choice is Viac or ValuePension.

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7

Do not underestimate disability insurance etc. in 2nd pillar.

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8

That’s what I feel like I’d “miss out on” if I don’t contribute to the 2nd pillar. But I don’t know how important these insurances included in the 2nd pillar really are.

Assuming that I have been, and will continue to save and invest regularly for my retirement and any emergency, are these insurances that essential? What if I just subscribe to relevant insurances that provide similar protection as a safety measure? Can this replace the insurance part of the 2nd pillar?

9

Without pillar 2 or any other insurances, all you (or your dependents) get in case of disability or death is AHV/IV. If that’s not enough (together with your savings), you either need pillar 2 or separate insurances. I have disability insurances (KTG + EU + free VIAC) but no whole life insurance as I have no dependents. I will probably terminate my disability insurances if/when I get to a point where IV would be enough together with my savings (and free VIAC insurance).

If you like flexibility, want to be in control over your investments and decide what exact insurances you pay for (and how long), go for 3a and also invest the money in your vested benefits account. If you prefer an all-in-one package with various guarantees, go for pillar 2.

Depending on your income, your requirements and the pension fund and insurance providers, one may be better than the other. However, I would expect this to require a detailed comparison incl. insurance offers.

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