Note 2: as it was pointed by respected forum members, the tax advantage actually exists for US and Japan stocks only, which are available as separate funds. So to maximize the tax advantage, one should allocate money deposited at finpension to US (better situation than Irish ETFs) and Japanese “Pension Fund” equity funds.
I don’t think it’s just US and Japan. For one, you definitely get the same tax advantage for Swiss stocks as in 3a you’re exempt from Swiss withholding and income taxes. UK generally doesn’t levy withholding taxes on dividends, as far as I can tell, so you get the same tax advantage.
Australia and Canada also waive taxes on dividends paid to pension funds according to the double taxation treaties. And there may be other countries. However, I don’t know whether the CSIF pension funds can/do benefit from this.
Overall I estimate the remaining withholding taxes in 3a to be fairly small compared to the income taxes you save with 3a. I.e. I wouldn’t bother with making the investment strategy more complex given that you don’t pay withholding taxes for presumably the 4 largest allocations in typical Swiss strategies (and there are also non-reclaimable withholding taxes for both US and IE world ETFs). It’s noise compared to various other decisions. Or am I missing something?
I don’t understand. From a tax perspective US and Swiss stock are the same with regards to the difference between 3a and taxable assets. You have to pay full income taxes (and no non-reclaimable WHT) on dividends outside 3a and no income taxes (and no WHT) at all on dividends in 3a. That’s assuming you invest in US stock via US ETF with a qualified intermediary broker and in Swiss stocks directly in Switzerland. Also assuming you can claim back the full 15% via DA-1 (i.e. your effective income tax rate is high enough).
Thus, I don’t see why US stock would be better in 3a and Swiss (and Japan, UK, maybe others) stock wouldn’t.
MSCI USA has a dividend yield of 1.29% - while MSCI Europe has 2.44%.
So you’ll optimise the tax advantage by
going 99% US in pillar 3a, thereby saving 15% withholding tax on every 1.29$ paid out and not “not paying” income tax on 1.29% dividends.
…while shifting your European holdings to a taxable account and paying income tax (at which rate) on a higher 2.44% dividend yield?
PS: I won’t dispute that one of the quotes above suggesting pension fund funds for US exposure was from myself - it just doesn’t seem though-through if/when this increases your share of higher dividend-yielding funds in taxable accounts…
Purely from costs and taxes point of view one should do exactly the opposite - keep only Europe+Japan in 3a and maximize US at IB. But this move is more of a tactical nature. One of the issues is the potential loss of access to US ETFs. Second is that I committed to buy certain developed markets ex US ESG ETF, which wouldn’t be possible if 1 comes true. So I want to buy as much as possible of it now, and for this I increase US allocation in 3a and decrease at IB. If 1 comes true, it would be easy to increase US allocation at IB via options and decrease this allocation at IB. Not very straightforward, but these are my thoughts now.
I noticed that all or most of the index funds offered by Finpension (Index funds – finpension) are accumulating. So in that case, does the dividend yield really matter? I must be missing some point here…