Hello everyone, just create an account and first of all, this forum is wonderful. I wish I had known about it when I first arrived in Switzerland. I made my first ETF order this year after 2 months scouting MP’s blod and the forum and now happily hold VT in my IB account.
I already searched and read topics about vested benefits account but didn’t see anything matching my situation so hope this topic can help me generate some helpful advices. Thank you all in advance.
I’m 34, non-EU, B permit resident who has been working in CH for a few years and have quite a decent contribution to the 2nd pillar until now. I can buy back around 30K given that I only started working here when I was 30. Soon I’m leaving this beautiful country to Japan for another international assignment for a few years. Then, I may come back to CH or find another assignment somewhere else. I have been looking at my 2nd pillar as bond-equivalent assets. Before leaving, I plan to buy back, then leave the money in finpension vested benefits account. Now, there 2 scenarios that can happen:
A. After a 4-5 years, I come back to CH for work
B. I will continue my global journey and will only touch my vested benefits when I need/retire (but I don’t know where, probably not Switzerland given my citizenship is not much welcomed unless I’m filthy rich :P; I don’t want to retire in my home country and I’d rather keep my retirement assets in USD or CHF than home currency (VND))
My questions:
Buy back now should be a good idea, right?
In scenario A, if I come back to CH after a short term gig, I will need to transfer my vested assets back to the pension funds, should I choose a more cautious strategy maybe 60/40 to reduce short-term volatility, so that in the next 4-5 years hopefully I’m not losing money?
Scenario B: As I hold no bond in my taxable account in IB, should I keep my vested assets with heavy weight in bond, hence, avoid the 99% strategies? 80/20 is what I want but not sure if it’s good enough.
In both scenarios, since I cannot have more than 1% in cash, what bond funds should I choose despite the fact that holding cash seems to be better at this moment :(, also what’s the benefit of the real estate funds?
I have set aside a good amount of emergency cash but turning my 2nd pillar into full equity investment may be a bit too much for my heart to handle haha. I’m not intending to hold any bond in IB at this moment as my plan is “simply VT” there.
Attached herewith is my mock-up strategy at finpension. I try to bring the equity part a bit closer to VT but not exactly the same.
Though I try to read very intensively the past few weeks but I’m still a newbie to many things so be patient with me and sorry for not being able to write shorter
I assumed they were aware of that (depending on taxation and what’s available in the other country, finpension can actually be really good, and given they’re abroad it’s actually fairly liquid).
Might depend if you have the cash and care about it being potentially long term invested. If you think of withdrawing also depends on the tax situation at the time of withdrawal (will it be more than your current marginal tax rate).
That might be the tricky part, if you don’t care about Switzerland but would still have everything linked to CHF
Depends what you are trying to achieve. The questions I’d ask myself are:
what is the term at which you expect to spend part (how much at a time) or all of your investments?
what is the currency in which you expect your expenses to be denominated?
what investment vehicles will be available to you? In particular, are there other tax advantaged investment vehicles that will be available to you while abroad?
what taxation regime will you be exposed to when abroad?
Scenario A would indeed warrant a more conservative strategy in my opinion. Bonds would be spent in CHF, on a relatively short term horizon. I’d go for either short term CH bonds or global aggregate bonds hedged in CHF.
The available funds that would come to my mind are:
CSIF (CH) Bond Aggregate Global ex CHF 1-5 Blue ZBH
CSIF (CH) Bond Switzerland AAA-BBB 1-5 Blue ZB
Short duration, CHF denominated or hedged into, decently high quality.
In scenario B, I’d expect your expenses to be in the currency of where you would be retirering, during your retirement. I could envision going for a longer duration, though choosing the right currency (and getting access to it) would be the harder part.
I’d try to assess under what tax regime I would fall and what investment vehicles would be available to me. Bonds are usually better kept in tax advantaged accounts because they pay interest, which has chances to be taxed at a higher rate than capital gains but depending of your personal situation and what is available to you, investing in a bond fund in taxable may have advantages too (mainly by giving you access to a broader choice of products). If you can have access to a fund of high quality bonds hedged in the currency of your future residence country in a tax advantaged account in your future expected workplace, then it could be worth it to evaluate if making use of it may be a good option.
Scenario A seems to be bearing the bigger risks for you, so in case of doubt, I’d probably lean toward shorter term and CHF denominated, while staying open to reassessing my situation whenever the picture changes and/or becomes clearer.
What would be your expected target allocation 5 years from now? That is, if all your vested benefits assets where to get back into a regular swiss pension scheme and you would count that as bonds in regards to your asset allocation, would that make you overweight in bonds or would you be able to get toward your target allocation regardless of this constraint?
Given all the uncertainty: maybe you just shouldn’t buy back? And even try to withdraw what you have in 2nd pillar.
In your age you should go for maximum stocks allocation. If for operational reasons you can’t have max stocks in vested benefits account, maybe you just go for maximum stocks in taxable account? No tax savings, but you will be better even after 5-10 years.
P.S. do you mind to disclose your destination? Or at least how tax-expensive it is.
Hi @Dr.PI thank you so so much for your replies. I’m going to Japan.
For shared being bought/invested in CH before coming to Japan, I don’t need to pay tax in dividends and capital gains (if I need to sell which is not my plan) for the first 5 years but if I stay longer, I will start paying tax on world wide income and capital gains. Unless I change my mind, my plan is to get out of Japan after 5 years.
I’m only considering the buy back because I want to benefit from the tax deduction for 2021. I might have not think long term enough but it’s hard as I don’t know yet where I will be 5 years later or in retirement.
I don’t cash out now though I can because:
I still can invest max 85% in equity with finpension vested benefits account
Withdrawal tax is low with finpension
I prefer to keep part of my assets in CHF in a long run
Sure, keep the 3a account with 99% equity at finpension. You choose yourself when you withdraw it and it is more efficient investment than taxable account. But it is not the case with 2nd pillar/Freizügigkeit account.
Hi @Wolverine , thanks a lot for the probe questions. They help me to think broader and deeper.
Big thanks on the bonds reco for Scenario A. I didn’t pay much attention to choosing shorter duration funds.
I don’t think I can vision the retiring currency yet, but I’m thinking of having my retirement assets hold in CHF and/or USD because they probably will still be much stronger than my home currency or countries where I can reside easily 20-30 years from now (FIRE planned at 55 max).
My expected allocation 5 years from now, 40-ish, may be 70/30 with a bit of cash for emergency. If all my vested benefits assets where to get back into a regular swiss pension scheme, I will count them as bond-equivalent assets within the 30% allocation.
Sorry I need to clarify, I purely seek advice about 2nd pillar. I have a tiny 3a and will be Global 100 with VIAC. And yes you are right, finpension only allows max 85% equity with vested benefits account.
as long as you‘re (mostly) invested in globally diversified equity fonds, currency is mostly irrelevant (the currency denomination of your MSCI World or similar fund doesn’t matter)
withdrawal tax when living abroad does, for many countries, depend on your country of residence, not your swiss pension/vested benefits provider and their location
Also don’t forget if you do buybacks and leave within 3 years, they will cancel your tax deduction gained during those 3 years and they will ask for a repayment and your money will be stuck in your pension fund…
I am assuming that by “buy back” you mean “make voluntary contributions to your pension fund” on top of the mandatory contributions deducted by your Swiss employer.
Things you should consider before making voluntary pension contributions or “buying into your pension fund” as the Swiss say are:
How much will a voluntary contribution save in terms of taxes? The tax deductions are the only reason to make extra, voluntary contributions to your pension fund. A possible additional motive would be to boost diability and survivor’s insurance, but those are really a side-thought.
Does using the pillar 3a make more sense? The pillar 3a is much more flexible, because you can choose how to invest your money (bonds, funds, etc.). The second pillar (pension funds) are only beneficial if you would otherwise keep your assets in a pillar 3a account (assuming the pension fund’s interest rate for voluntary contributions is higher than the bank’s interest rate). Personally, I would recommend maximizing your pillar 3a contribution first, and then using voluntary pension contributions for additional tax reductions.
How sound is your pension fund? If pension funds get into financial difficulties, they can take pretty stark measures to sanitize their finances. Check into your pension fund’s creditworthiness before making voluntary contributions.
How much interest do you earn? Unlike mandatory benefits, which have a government-assigned minimum interest rate, there is no minimum interest rate for voluntary benefits. It is up to the pension fund to decide.
How high is your pension? Here too, the legal conversion rate for mandatory benefits does not apply to voluntary benefits. So the pension paid out from voluntary benefits may be lower.
Pension or lump-sum? Does your pension fund allow lumps sum withdrawals, or is a pension your only option? Does it pay out a pension on voluntary benefits, or is your only option to cash them out when you retire?
If you stop working in Switzerland or do not cash out your benefits when you leave the country, you will have to transfer your benefits to a vested benefits foundation. Make sure you look into how this compares to using other solutions outside of the second pillar. The costs are generally lower for non-bonded assets. One possible advantage of keeping vested benefits is that you generally can keep these accounts after leaving the country (unlike many bank accounts) and normally do not pay non-resident fees. If your goal is to keep CHF in Switzerland, it could be worth considering.
Oh, this is IMPORTANT to me. thank you. I want to do the buy back next month, just before leaving in Nov just to get the tax deduction for 2022 (CH tax resident until Oct 2022). So what you are saying is that this tax deduction will not be given because I’m leaving CH? I don’t mind the buy back amount being locked 3 years but if I don’t get the tax deduction I won’t be considering the buy back. Do you mind sharing the information about repaying the tax deduction?
Hello, thanks for the long rep with many points. The people in this forum never stop amazing me.
Answering you, yes, I will max out 3a contribution but I only start this year (silly me) so even after making 3a contribution, I still have a bit of cash left. I am leaving Switzerland soon so I will definitely transfer my pension funds to a vested benefits account. I am considering the voluntary contribution because I want to get the tax deduction to be applied for 2022 (tax saving calculated around 10K). That’s why I’m asking question about how I should allocate my vested benefits assets (to be done after the voluntary contribution is made and my pension funds is transferred to the vested benefits account).
No. The legal minimum interest rate and conversion rate only apply to mandatory benefits (pillar 2a). Each pension fund is free to set their own interest and conversion rates for voluntary benefits (pillar 2b). In almost every case, these are lower than the legal minimums for mandatory benefits.
Every pension fund handles this differently. One model that is commonly used is that the pension fund applies the average of the pillar 2a and pillar 2b rates to total benefits. If the pillar 2b rates are low, and you have a lot of benefits, this can result in lower interest and a lower pension than the legal minimums would lead you to believe. Other pension funds calculate them separately.
If you do decide to keep vested benefits in Switzerland, then I assume you have a good reason to (e.g. to keep wealth in Switzerland). In that case, I would personally recommend using a low-cost retirement asset managent service like Viac or Finpension. Both of these have vested benefits services. You can use a combination of savings accounts and ETFs to put together your portfolio as per your investment strategy.
Unfortunately I can’t find the article where it was written. If I were you I would call the Cantonal Tax Administration from your Canton and confirm. There has been issue were people did some buyback and were fired from their work. 1 example was a women and she was fire from her work in Switzerland and she did major buyback the 2 previous years. As she couldn’t find a job in Switzerland she had to go to France for work. She had the intention to come back one day in Switzerland, but the Cantonal Tax Administration didn’t care and they required her to payback the tax savings. Se went to court against that decision and she won (I believe not sure). There also been some cases that the Cantonal Tax Administration didn’t required a payback…so it seems a case by case decision. Personally If I were you I wouldn’t take the risk for such a low amount.
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