Choosing the "Minus" Plan for Pension Fund: Is It a Smart Strategy

Banks, Insurances & Third Pillar
1

Hi everyone,

I have the option to choose between three savings plans for my pension fund: Minus, Standard, and Plus. I’m considering selecting the “Minus” plan so that I can invest the amount independently, aiming for a higher return.

Does this strategy make sense, or are there any drawbacks I should be aware of?

Thanks for your insights!

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As long as your employer still pays the standard, then it doesn’t make much difference. Presumably, you can always change later.

I’m assuming the different plans just changes the % amount the employee contributes.

3

Probably obvious, but with the “Minus” plan you’re not only taking the chance of excess upside returns but also the risk of no downside protection.

Not entirely knowing what the three plans actually mean, I am assuming that with your “Minus” plan you (employee contribution) don’t pay into your pension fund but instead receive that cash to invest it yourself while with plans “Standard” and “Plus” you pay some (employee) amount or extra amount into the pension fund?

If so, “standard” and “plus” strategy protect you against any drawdown, well, they even promise a government decided guaranteed return on the obligatory part.
With your “Minus” plan, you will assume the risk of any drawdawn at market time.

Not advocating for either, just pointing things out in case you were not aware.

4

I‘m still paying, just like for example 180-200.- less per month. I think my employer still pays „normally“, need to check again.

But i thought maybe to take the „minus plan“ and invest the difference instead of opting in for „standard“ or „plus“ where i pay 50/50 with the employer or 60/50 with the plus plan…

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Minus, Standard & Plus is only about Employee contribution. Most likely your selection would not impact the Employer contribution.

So yes, if you know where you can invest and get higher returns, then it should be fine. In the end , its a mathematical judgement. Following variables are at play and individuals need to do the calculations.

For 2nd pillar

  • No wealth tax and no tax on income from 2nd pillar
  • Tax saving at time of investment , depends on marginal tax rate
  • Attracts min interest (BVG) and rest depends on employer. Some employers offer very good returns
  • Money is locked in until retirement except for certain exceptions
  • Attracts lumpsum withdrawal tax at time of withdrawal
  • You can invest the tax savings…again depends on marginal tax rate

For case when you choose not to put money in 2nd pillar

  • No tax saving at time of investment
  • Money is not locked in
  • Attracts wealth tax
  • Attracts tax on income
  • Possibility to generate higher returns if someone actually invest
  • No guarantee of any sort

I have seen many people saying “i can generate more returns vs 2nd pillar” and then they keep money in savings account. So make sure you do what you plan to do.

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6

@Abs_max summarizes things more succinctly.

Personally, if you can invest an additional 180-200 CHF per month more efficiently – taking into account your marginal income tax rate, wealth tax, etc – then maybe go for it.

If you haven’t quite figured out the details all of the parameters layed out by @Abs_max , then maybe run the numbers by yourself?

I used to believe that I could generate a higher return than money stuffed into pillar 2.
I no longer do.

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7

Probably depends on the pension fund in question, but many had abysmal returns. It might look bettert if you look at annual risk adjusted returns. But over multiple decades a sound but annually more risky strategy will beat that with near certainty.

Also the political environment is bad. Votes reflect that everybody wants theirs, even when its coming from others. 2nd pillar assets are restricted and vulnerable to political whims.

What do I not see?

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I had the same decision to make and chose minus. As my employer contribution is exactly the same for all 3 options.

You’ll recoup the tax savings after a few years on average. So unless you have less than ~5 years til you can access the funds and get the BVG minimum return, it makes mathematically sense on average to choose minimum (while investing in riskier assets yourself).

9

Plus you’re free to make a voluntary buy-in whenever you feel like.
“Minus” all the way (assuming the employer still pays the same, true in all cases I’m aware of).

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10

Is there a difference between a “Plus” plan, and a “Minus” plan where you manually contribute the difference to the 2nd pillar via a voluntary buy-in?
I was told maybe for frontaliers, but the info wasn’t very clear.

11

Opting for higher pension contributions when given the choice is a good move if you’re planning to acquire a primary residence in the coming years AND if you would use your 2nd pillar for the purchase.
Essentially you get the tax advantage of a voluntary contribution on the delta between the minus and plus plans without the standard 3-year restriction/penalty for cashing out.

Pretty sure that it’s probably worth it even if your purchase happens in more than 3 years, e.g. in 4-5 years. Longer than that would require running numbers and probably would be quite dependent on various assumptions.

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12

I think “manual” contributions (buy ins) always go to the voluntary assets (Überobligatorium), whereas a “Plus” will likely contribute to the mandatory part (Obligatorium). But you would have to check this specifically for your case.

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13

Since you can’t have contributions below the Obligatorium, anything above the lowest options (and maybe/likely even part of that) will always go to the supplementary portion (Überobligatorium). Your higher contributions could only end in the mandatory part (Obligatorium) if your employer also pays different amounts depending on what you choose (which is possible, though I have never actually seen it in CH).

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14

And keep in mind that anything contributed to the “Überobligatorium” is not bound to the minimum conversion rate for a pension.

Should not be relevant if you plan to withdraw the capital, but who knows if that option will still be offered by the time you get there.

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15

My guess, without knowing which pension fund you use, is that the plans differ with regard to these factors:

1. Insurance coverage: Typically, the most basic plan only includes the mandatory disability and survivor’s pensions. In this case, the pension you would receive if you become disabled because of illness is only a percentage of your existing pension benefits. The higher-end plans typically include supplemental disability insurance and life insurance that ensures a pension of X% of your insured salary. Of course, this insurance costs money, so at least part of the additional cost of a higher-end plan goes to cover the insurance premium. Whether or not you need/want extra insurance depends on how risk-tolerant you are. It can also be worth comparing the extra premiums you would pay with the cost of insuring these risks privately.

2. Voluntary contributions: Higher-end plans may enable you to make additional, voluntary contributions on top of the mandatory ones. In some cases, your employer will match the contribution, or even pay a disproportionate share of the total voluntary contribution. There are a number of things to consider before you make voluntary contributions to your Swiss pension fund:

  • Your investment strategy: With the exception of 1e plans, pension fund benefits are a fixed-income asset. So you need to look at how voluntary contributions will affect your portfolio as a whole. In my opinion, it’s pointless to compare with equities because that’s a different portfolio component. Only allocate money that you would invest in fixed-income assets anyway. A 1e plan would be an exception, as those benefits can be invested in equities.
  • Your risk tolerance: The LOB Guarantee Fund for Swiss pension funds only covers compulsory benefits. Voluntary benefits are not guaranteed in the event that the pension fund becomes insolvent. So you get less protection than you could get from the Esisuisse bank depositor protection by dividing your money between savings accounts or medium-term notes from a number of different banks. The creditworthiness/financial health of the pension fund is important.
  • Your tax situation: Because voluntary contributions are tax-deductible, there are cases in which the tax savings can be substantial. But you have to assess the potential tax savings and account for them when comparing with opportunity costs (if you could earn more interest elsewhere).
  • Your life situation: There are a few less common situations where having higher pension fund contributions can be beneficial. For example, people with alimony/child support obligations and people who are repaying debts may be reduced to living at the poverty line, with the rest of their income going to child support or debt repayments. Because the pension fund contributions that are taken off your salary every month generally are not accounted for in poverty line calculations, having a plan with high voluntary contributions would enable people in these situations to save more money (in their pension fund) than their subsistence budget would allow for.
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