Hey all,
motivated by this thread on how to cash out 2nd (and 3rd?) pillar by becoming a temporary “freelancer”, i tried to evaluate how beneficial this is. Should i consider this at all???
I came up with this spreadsheet:
where i compare a lump sum or yearly feed (or combination…) going to 2nd pillar or a stock heavy mustachian portfolio.
basically this tries to equate the lousy return of pillar 2 in accumulation phase vs. the quite high return of 6% (probably even less…) during retirement phase, and benchmarks it vs the stock portfolio.
the result is, for every Swiss frank existing in pillar 2 or the stock portfolio, a yearly and constant pension beginning at the age of 65 will be paid out:
0.122 CHF from pillar 2
0.164 CHF from the stock portfolio, 34% more (wow!)
if i start this calculation at later age, the advantage of the stock portfolio shrinks:
age 40: 10%
age 50: -10%
breakeven around age 45, so don’t cash out after that
In summary, i will dig a little deeper and may attemt to cash out my current 2nd pillar, for maximizing returns!
possible errors:
The Umwandlungssatz is going to decrease below 6% in the long term => correction reduces pillar 2 values
interest rates my vary => could go in both directions
taxes not reflected => probably favoring pillar2 if corrected for
retirement age for my generation may rise beyond 65 => correction favors stock portfolio
in the stock portfolio case, the one swiss frank grew to CHF 4.104 which you’d own as liquid funds. with pillar 2, this is not the case as your stash “vanishes” when you decide for pensions => clearly a plus for the stock portfolio
The pension fund I’m in has had 3% CHF return over the last 10 years. So this 2% maybe a bit too little.
Why 4% portfolio return? Sure, when I look at 10 year CHF return for VWRL, then it’s even lower, but that was because of the CHF getting stronger and because of counting from the peak of the bull’s market. Just wonder how you arrived at this number.
Why do you care about Umwandlungssatz? At the moment, once you reach retirement age, you can pay out everything. But this will soon change, I think. They want to prevent you from partying with your retirement money and then having nothing to live.
If you do get to pay out your pillar 2, there will be Kapitalasutahlungssteuer to pay. It varies a lot depending on the amount and canton. For example, 500’000 in Zurich will cost 11%, but in Zug only 6%.
Some thoughts about transferring your 2nd pillar money. I don’t go into cashing it out early.
If you leave your job, you have to tell your PK where they should transfer your money. You have the choice to transfer it to the new employer’s PK or to a Freizügigkeitskonto. When you do not start to work directly, you will probably transfer it to a Freizügigkeiskonto anyway.
Doing some quick research, I fond out the following:
You can split the money and transfer it to two independent institutions (protection against default of the institution).
If you cash out the money later, it is taxed progressively. You have to cash out the whole account but at once. If you have two accounts, you can cash them out in different years to reduce the tax burden.
If you do not plan to cash out your capital in the next years, you may want to invest it in a BVG conform fund. Example: The Swisscanto BVG 3 Index 45 R gives you a 45% stocks exposure for a 0.35% TER.
When reaching the relevant age (retirement -5 years) Freizügigkeitskonto can only be cashed out and does not allow for annuity payments.
But if you cash it out instantly, it’s taxed the same way, right? Also in order to pay out you need to have left Switzerland or be self-employed.
That’s interesting. So if I stop working, I can put my 2. pillar on two accounts; then, when I leave Switzerland I can cash out one account, and 1 year later the second account? That would be quite practical for some cantons. In Zurich, if you pay out 500’000 at once, you pay 56’000 tax. In two tranches the tax is only 35’000.
Let me get this straight: so you’re not working, you’re not even in Switzerland anymore, but the money on your Freizügigkeiskonto can still be invested? I thought it’s not possible. That would be interesting.
I think it depends whether we are talking about cashing it out before retirement age or when you reached the age a cash-out is possible. Five years before reaching retirement age, you can cash out your Freizügigkeitskonto without strings attached. However, I do not know if the same tax level is applied as when you cash it out prematurely.
Not totally sure if this applies when you leave Switzerland. It works as described when you reach the age eligible for cash-out.
Again, my scenario is not to leave Switzerland as it is my home. However, when you can keep your Freizügigkeitskonto when you leave Switzerland, then you should also be able to have it invested. But you would have to read up everything regarding leaving Switzerland yourself. I do not have any expertise in this area.
I just come up with another question, about taxation of the 2nd pillar cash out.
I looked it up - and my contribution to pillar 2 is fully taxed!
only my employer’s contribution, which amounts about 1.75 times my mandatory contribution, looks un-taxed.
so once i cash out my pillar 2, it will be taxed a second time?
what a rip off!
@lv24: There are many places writing about it in German. But since I do not have the proper English vocabulary it is hard to find something regarding this topic. One example is here.
Not really - although tax at source rates are tabulated on the gross monthly income, they do consider typical deductions such as AHV, mandatory pillar 2 contributions, etc in the underlying calculations
By the way, that is why the employer contribution is better than the employee contribution: you don’t pay AHV etc. on it.
Let’s say you have two choices:
Either you receive a gross salary of 150’000 and pay 10’000 to 2. pillar yourself
Or a gross salary of 140’000 and the employer pays the 10’000 to the 2. pillar
I assume the mandatory contribution to the 2. pillar is paid, the 10’000 is just the additional contribution. In both cases the total cost for the employer is the same. The difference is that in 1. case you will pay around 10% for AHV etc. from the extra 10’000. In the second case it doesn’t get paid. So you save 1’000 this way. That is, of course, if you can make a deal like this with your employer.
For me the biggest problem with 2nd pillar is nonsensical, ultra-conservative asset allocation and costs of the funds. If it were possible to make more reasonable, I’d love to know how.
i have some news on the topic. I contacted both VZ (3rd pillar) and my pension fund (publica) about cashing out upon “self employment”.
for pillar 3a, they would be mostly happy with the AHV statement of self employment.
the pension fund however (and as she pointed out any pension fund since a few years) wants to see a long list of documents (“more = better for positive decision”):
business plan
customer contracts
employee contracts
office rental contracts
statement on other work you do
Handelsregisterauszug
so to me this looks like not-so-easy-peasy when i just want the cash but effectively am not self employed. My first impression now says this won’t happen.
i was actually more interested in the 3nd pillar money, since they manage order of magnitude 2% return when stocks went up 20%+ last year. bah…
also, as @Bojack pointed out, they like to see customer payments. these then account for income, which you have to pay AHV etc on. the whole cashing out seems to become anything but frictionless
Go on freelancer.com or fiveer you will find someone to create business cards and business plan. Tell you work from home. An Handelsregisterauszug is not mandatory. How would you have customers and employed if you don’t have started your company ?
One of my friend registered as self employed a few years ago and didn’t have to provide all of these documents. He basically only registered to the “Handelregister” and was able to cash out his whole 2nd Pillar.
It might be possible that some Cantons are more flexible I guess.
Even if you could sell fast after cashing your 2nd pillar for a real estate purchase, there are evidently significant cost associated with the purchase and sale of RE. Additionally, there is the caveat of ‘Grundstuckgewinnsteuer’ – even if you sell fast with a profit, most of that profit will disappear to the tax collector.
Probably not the most efficient way of getting your cash back.
On top of that, you can use 2nd pillar only only for the house you live in. If you sell it (or rent it out), you will have to pay the money back into the fund. What I never could find answer to is: what happens if I take 2nd pillar money, put it in the house, then leave the country? Leaving the country, taking the money, and then putting them into the house would be fine, but the other way around is likely not.
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