Buying into 2nd pillar pension instead of paying it to taxes

Taxes
41

With a Swiss pension fund (unlike bonds), you also need to account for the tax (and taxable-income-related) savings when calculating returns.

Tax savings vary hugely depending on your family situation, the canton/municipality you live in, your income, etc. In my case there are also additional savings through benefits (scholarships, health insurance premium reductions, etc.) which are based on my taxable income. These are far more substantial than my actual income tax saving, generally in the tens of thousands of francs per year.

It’s important to calculate the real return based on your specific situation.

2 Likes
42

It can be very attractive, let me give an math example:

A. You pay in 100k per year in 2023, 2024, 2025. your marginal tax rate is 35%. It earns 2.5% in the pension fund. Your tax savings you then invest at 7%. You leave Switzerland and move pillar into Finpension, it earns 7% p.a. In 2026, 2027,2028. you pay 5% tax on liquidating the pillar 2a. Your total is now 502k post tax

B. You invest 100000 per year in 2023, 2024, 2025 and it pays 7% per year, then keep the funds for through 2028, still earning 7%. You pay no taxes on the capital gain. You end up with 394k.

A few things:

  1. You want to stop paying into pillar 2a where you marginal tax rate drops. For us circa 250k CHF.
  2. you want to pay as much as you can the very last years, as you are unlikely to gain as much in pillar 2a as in market. Hence, over time the increased market return will beat the tax savings from pillar 2a contribution
  3. this scheme protects against SORR near retirement as pillar 2a returns are positive
  4. For very high incomes, it is beneficial to buy maximum into pillar 2a, as per BVG limit.
  5. Some pillar 2a schemes actually pay decent returns, making this an absolute golden scheme
4 Likes
43

That’s the highest i have heard. Really good benefits
 consider that you cannot have negative returns.
I would really do buy ins there.

Where do you work? big tech? Pharma?

44

Sounds like a (too) optimistic rate to me.

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45

To find this threshold do you check the cantonal taxes tables for income tax? and what do you mean exactly when the “tax rate drops”?

46

Who do you work for and are they hiring? :stuck_out_tongue:

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47

Many cantons have steep progressive rates, so after you reduce taxable beyond a certain level it is not worth going further as the tax savings are low. If you go really further, tax savings go negative if your marginal rate becomes less than the tax rate on withdrawal.

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49

From today’s NZZ

Pensionskassen schwimmen im Geld

Nach dem Börsenboom zeigt sich eine riesige Kluft zwischen den Pensionskassen. Die Verzinsungen reichen von 1,5 bis 9 Prozent.
«2024 ist ein Glanzjahr fĂŒr uns», sagt Laurent Schlaefli. Der GeschĂ€ftsfĂŒhrer der Pensionskasse Profond kann seinen Versicherten richtig viel Geld ausschĂŒtten: 8 Prozent betrĂ€gt die Zinsgutschrift fĂŒr die ErwerbstĂ€tigen. Erst einmal, im Jahr 1997, war die VergĂŒtung noch höher. 

Die grosszĂŒgige AusschĂŒttung kann sich Profond leisten, weil die Pensionskasse mit ihren 70 000 Versicherten an den FinanzmĂ€rkten eine Rendite von 9,6 Prozent erwirtschaftet hat. 
Profond gehört zu jenen Kassen, die einen besonders hohen Anteil in Aktien und Immobilien investiert haben. Festverzinsliche Gelder machen bei ihr lediglich 14 Prozent des Portfolios aus.
Auch Pensionskassen mit weniger Aktien haben 2024 allerdings sehr gut verdient. GemÀss einer SchÀtzung der Beratungsfirma Complementa erreichte die durchschnittliche Rendite 7,6 Prozent. 



Complementa-Chef Markus Wirth. Nach seiner SchĂ€tzung erhalten die ErwerbstĂ€tigen fĂŒr 2024 eine durchschnittliche Verzinsung von knapp 4 Prozent – ein solcher Wert wurde in den letzten beiden Jahrzehnten nur einmal ĂŒberboten.
Dabei zeigt sich jedoch eine enorme Kluft zwischen den verschiedenen Kassen: Zu den grössten Profiteuren zĂ€hlen die Mitarbeitenden von UBS oder Sulzer, die eine Verzinsung von 9 Prozent erhalten. Auch die Migros-Angestellten gehören mit 7,5 Prozent zur Spitzengruppe. Auf der anderen Seite mĂŒssen sich die Bundesbeamten mit einer Zinsgutschrift von mageren 1,5 Prozent begnĂŒgen. Auch das Aargauer Staatspersonal erhĂ€lt weniger als 2 Prozent.


Doch wie gut ist eine Pensionskasse wie Profond gegen einen erneuten Einbruch an den FinanzmĂ€rkten gewappnet? Die Bewertungen an den AktienmĂ€rkten sind im historischen Vergleich hoch. Ausserdem tendieren die Zinsen der Schweizer Staatsanleihen wieder gegen null. Schlaefli gibt Entwarnung. Entscheidend sei der Kapitalfluss aus den laufenden ErtrĂ€gen: «Wir mĂŒssen sicherstellen, dass die Einnahmen aus den Dividenden und den Immobilien die Rentenverpflichtungen decken können. Dies ist fĂŒr die nĂ€chsten Jahre gewĂ€hrleistet.» Nach seiner Überzeugung hĂ€tten auch andere Kassen das Potenzial, höhere Renditen zu erzielen. Eine ĂŒbertrieben vorsichtige Anlagepolitik sei nicht im Interesse der Versicherten.
AKA Dividendenstrategie von @Your_Full_Name :wink:

1 Like
50

I’m so annoyed by my pension funds. Had they invested in stocks instead of giving me 1% per year, I’d have enough to be retired by now!

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51

Actually yesterday’s article on the Tagesanzeiger is one to pay attention. We need to wonder for how long you will still be able to buy in the 2nd pillar as we can today
I wouldn’t be surprised if they will change the system closing loopholes that enable aggressive tax avoidance

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52

Interesting. It mentions moving abroad to avoid pension tax altogether and Singapore as a destination. Does anyone know more about this?

53

Tagesanzeiger Is behind a pay wall, would someone mind to paste text kn?

54

I think the problem is not about voluntary contributions. The pension gap arises because of increase in salaries. Just because someone makes more money doesn’t mean they are avoiding taxed via contributions.

Of course government can limit amount that can be contributed every year to X% of annual income to avoid big purchases. In addition, the calculation on how voluntary contribution potential is calculated could also be changed. Today it doesn’t take into account years of service in CH. It just takes into account your age.

However the loophole that might be closed is

  1. staggered withdrawal that is caused via house purchases. It could be that total cumulative withdrawals would be taxed irrespective of when you take them out.

  2. tax avoidance when people move abroad to favorable countries. This is not easy to change because this is driven by DTAA.

I feel Swiss press these days seem to pretend that they forgot what the business model of Switzerland is. CH wants rich people to live in CH and offer them lower taxes. Same is true for corporations too. There is no point complaining about advantages for the rich when the business model is based on that.

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55

i think it is something like:

  • waah wahh some people are paying in 100k’s into their pension in a year
  • waah waah one or two people ended up with a 8 figure pension pot
  • waah waah if they were taxed on this 8 figure amount as income they would pay $xxx but instead they pay only $yyy

what they miss out is:

  • what is withdrawn from the pot is not necessarily what is put in. capital invested outside of pension would not have any withdrawal tax at all
  • if you invest 1000 per month for 40 years, with decent growth you’d end up with a pot over $8m. assuming a marginal tax rate of 20%, you’d have saved 96k of tax over the 40 years. assuming you pay a low 5% withdrawal tax, you’d still pay over 400k in taxes, far more than you would have saved in tax deductions
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56

But by staying put, you are providing (tremendous) shareholder value. Thank you for your sacrifice. (of course sarcasm, before anyone thinks I’m serious)

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57

Full text on archive.today: https://archive.is/bsPCE

1 Like