Help me optimize my 2nd pillar - worth switching or buying in?

Banks, Insurances & Third Pillar
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Good evening everyone,

I’ve been told you’re a smart bunch of people so I’m kindly asking for advice :slightly_smiling_face: Me and my wife would like to know whether our 2nd pillar plan is the best option for us or should we switch providers. Also, if we should buy the missing years or not. Hopefully some of you can help us understand our situation, your input will be most appreciated even if you’re not an official tax/financial advisor :slight_smile:

When we moved to Switzerland five years ago during Covid we didn’t put much thought into choosing the best provider for us. We just wanted to start a business as soon as possible and found our company where we are currently both employed. Since we are employed at our company, we can freely choose the 2nd pillar provider. We are the only two employees at our company btw.

We chose Swiss Life Business Invest plan then. We have been paying little over mandatory amount but we don’t know if this is smart or we should rather put that extra money in a global index fund with better returns. I’ve attached out 2nd pillar certificates.

We are not risk averse and can stomach a stock market crash or recession for years. We both started 3rd pillars at Finpension when we moved to Switzerland and pay in fully each year.

We are in our late 40’s, no children and still have around 15 years until retirement. Exact time of (early?) retirement depends on whether we will muster the energy to work until the official retirement age or not. We’d rather not to be honest. We don’t plan to leave Switzerland before retirement and we don’t plan to use 2nd pillar money early to buy RE or similar. We currently have no plan to buy any real estate any time soon (we might rent forever). Based on our family history we do not expect to live past 75-80 so dying with zero is an attractive proposition.

Our combined gross income is currently 150k which is little less than our company yearly revenue. We don’t have any other wealth except 2nd and 3rd pillars accumulated in the last 5 years and around 15k in stocks. Obviously when time comes of our parents’ passing, we will inherit their modest houses back home with our siblings which we’ll sell right away and invest the money into a global ETF. We plan to live/spend a lot of time in a cheaper (sunnier :sun_with_face:) country after retirement.

We’ve been employed for 15-20 years in our home country (EU) before leaving for Switzerland. This will give us a combined pension back home of around 300 eur monthly by today’s calculation when we reach their retirement age.

We don’t know if we can/should buy the missing years some people talk about? To be honest, I don’t even know what “missing” means in our case :slight_smile: We don’t have any private money lying around but we have a low six figure amount in our company’s business account which is currently deposited in the bank at 3 % interest rate. Could we use this money to buy the “missing” years? Would it be a better idea to invest this money in a global ETF (which is then subject to capital gains tax)? Or pay ourselves dividends/increase our salaries and invest the money as private persons to avoid the capital gains tax but then we have to pay the income tax?

To quickly summarize, these are our main questions:

  • Should we keep the same pension plan or switch? We heard Profond has more aggressive 2nd pillar options with up to 50 % invested in the stock market hence the higher returns? Is it worth the hassle? I like the idea of higher returns in the long run.
  • Should we continue paying more than mandatory amount or keep it at a minimum and invest the extra money privately in the global ETF?
  • Should we buy in the missing 1st/2nd pillar years (whatever this means)?
  • How/should we use the company money which is currently doing only 3 % per year?

Thanks for all the valuable insight. I know it’s a lot to unpack and these questions are best directed to a tax/financial advisor but don’t be afraid to give your opinion, just imagine we’re discussing life choices and mistakes over a beer in a pub :slight_smile: Unless of course you work as a tax/financial advisor in which case feel free to contact me for consultation.

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And the second attachment

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couple of notes:

What kind of product is that? That would be extremely high for a risk free return in CHF.

There is no capital gain tax in Switzerland.

To begin with, this really depends if the tax saving makes sense (so what your marginal tax rate is). If you have lots of equity in the company you’d want to distribute, I guess you could increase your salary and increase your pillar2 contributions (I’m not so familiar with that tho, so there might be caveats).

Personally given you don’t have much invested in post-tax accounts, I’d probably grow that first until a reasonable number (5y? 10y? of expenses), 2nd pillar is nice but that money is fully locked until retirement, you likely will want at least some flexibility.

(I’d still contribute fully to 3rd pillar though, since it’s more flexible in terms of investment option)

For the 2nd pillar, it might make sense to change if you’re willing to take more risk (some of the pillar2 like you mention have a more equity heavy portfolio)

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What I meant was if we’d invest the company money (as a company), then any profits would get taxed.

It’s a simple time deposit for 12 months I did in August 2024. Maybe companies have better terms? Or maybe it helps that we put in a low six figures amount. Really don’t know…

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  1. Go for most aggressive 2a, as you have the choice. As you are >10 years from retirement you will want risk/max compounding
  2. Dont buy into 2a with volunteer/ catch up contributions - yet. You dont make enough to get a decent tax deduction. And too far away from retirement - the missing compounding vs ETF investments will hurt you
  3. Once you make 2-3X of today and are 4-5 years from RE, plow anything over 200k into 2a until FIRE
  4. Then move 2a to Finpension
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I think regarding the 2nd pillar provider, it seems your plan gives you BVG Interest + x% where x depends on coverage ratio. With your current coverage ratio, you are getting 1.25% interest on your 2nd pillar

I don’t know for sure if Finpension also offers business plans for 2nd pillar or not. But maybe give them a call and check. They have 3a, Vested Benefits & 1e. Maybe they also have something for you

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Let’s first clarify what is this money meant for.
If this is to run business operations then you need high liquidity and low volatility.

I am a bit surprised by 3% you are getting. Is it really a high interest account in CHF at Swiss provider? Or it is some sort of investment that you have made.

What is the purpose of company money?

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By the way, do you have an actual retirement budget/plan? That might also be very helpful in determining what needs to happen (and even whether early retirement is possible).

How big is your pillar2 at the moment? (It’s hard to parse from the report, might be easier to find in your individual employee statements)

Seems like you currently put aside 12k (pillar 3a) + 22k (pillar 2) for retirement/savings and 0 in post tax savings, you’ll have to check based on your retirement plan budget if that’s enough (and if you need to take more risk).

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Is that OK compared to what other people are getting?

It’s not an account; I just time deposited it for 12 months at UBS. The deposit expires in August.

We don’t need it for anything else except our retirement. There is a thought of maybe buying a house with it in a cheaper country but it’s just a thought at the moment. That’s why it’s bothering me that it’s getting only 3 % when it could earn 5-7 % on the stock market.

Our plan is to spend most of our retirement time (if not all) in a cheaper and warmer country where I guess couple of thousands per month would be enough for us.

I’m surprised that it can’t be seen from our certificates how big is our 2nd pillar. We can’t really read them… We don’t have any other statements. How do we find out how much have we accumulated in the 2nd pillar?

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Well 3% guaranteed interest is also something not easy to achieve. Are you sure it’s 3% guaranteed interest for as long as you want ?

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Some funds get 1.25%
Some get 6-7% (UBS pension fund members)
Everyone else is somewhere in the middle

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3% guaranteed is really good :grinning_face_with_smiling_eyes:

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Yes that’s what I am wondering how is it possible

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Sounds like festgeld or another type of fixed short term deposit at UBS going from August 2024 to August 2025, for 3% interests. It isn’t replicable and it wasn’t a liquid asset until now (it’s close enough to the deadline that you probably can pull out measures to delay due payments and use that money if necessary).

The question of what to do with this money in August is relevant in my book, but I wouldn’t focus on the 3% interest part of it. I’d focus on:

  • liquidity needs for the company ;
  • longer term needs for the company ;
  • safety of deposit (savings accounts, festgeld and medium term notes are insured by esisuisse up to 100’000.- but not above) ;
  • “risk free” returns that can be obtained on it (there’s a term risk on festgeld so it isn’t purely risk free).
  • need for additional returns (amount of risk that should/can be taken) ;
  • tax questions (is it better to keep it in the company, outside of the company and if so, what is the most adequate way to make the transfer) ;
  • others.

Pillar 2 covers 2 purposes:

  • Saving/investing for retirement.
  • Protecting income against the risks of disability (from illness or accident) and death for the family.

In this situation, that second part seems important to me and I would take some time getting familiar with the coverage both of the spouses get from the first pillar (AHV-IV) and what your needs are from the second pillar.

The risk coverage from the 2nd pillar can come as:

  • additional income or lumpsum paid to the insured person in case of disability.
  • additional income or lumpsum paid to the spouse in case of disability and/or death.
  • additional income or lumpsum paid by dependent child in case of disability and/or death.
  • other that I have no knowledge of (I’m a dilettante on the topic).

In this case, if one of the spouses suffers long term inability to work, my understanding is that it would affect the other spouse’s income as:

  • it could/would put the company in jeopardy, taking away all of the income the couple had.
  • it could/would affect the time they have to put in the business, lowering even further their capacity to generate income out of it.
  • it may even put the business into bankruptcy, rendering unusable assets you thought were accessible (like the low 6 figures funds).

The way this pension plan is structured seems a bit alien to me as it separates illness and accident including in the case of death, which isn’t what I’ve seen in my recent employee certificates. That doesn’t mean per se that it is a bad thing but I would want to assess what actual coverage I get and if that’s what my family needs in the amount it needs it.

Your contact at Swisslife should be able to vulgarize for you exactly what you get in case of:

  • disability due to illness from either of the partner
  • disability due to an accident from either of the partner
  • death due to illness of either partner
  • death due to accident of either partner
  • disability due to illness of a partner occurring after the death of the other partner
  • disability due to an accident of a partner occurring after the death of the other partner

Those are dire topics to consider but I’d treat them as a pure financial matter of “how much would you (from you to your spouse and from your spouse to you) have to handle things if the worst came to pass and what would happen to the business in such case” and not attach emotional affects to them.

Your contact at Swisslife should also be able to explain in comprehensible terms what is covered as an accident and what is covered as illness. If their explanation doesn’t leave you with the sense that you are understanding your situation and the actual coverage you get, I would ask them to clarify further until I am satisfied. That is a huge part of what their job should be and part of why you are paying premiums to them.

These are the areas I would put specific attention on:

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Chances are it’s a projection based on an arbitrary interest rate they use to help you plan for pensions. What you will get can be less or more depending on the situation of the pension fund and the returns it actually gets on its assets. I would not use that number. There are specific metrics that help assess the health of a pension fund, the excess returns over the mandatory rate it has distributed in the past (and their reliability) and the likelihood that it will be able to sustain its liabilities in the future. I’m no specialist and need to read on it for a more complete answer so won’t be doing it now.

Be aware that:

  • there usually is a waiting period until you get benefits in case of disability. Your needs and situation need to be assessed taking into account the benefits you’d get from all 3 pillars.

  • the way in which you structure the salaries of both of you affects the direct and spousal benefits you are getting out of it. There might be some optimization that could be done there too (or not, I haven’t assessed the situation).

  • your selected pension plan will be applied to any new hires you may have in the future (including temporary ones to potentially replace one of you in case of disability). You’ll pay the same level of employer premium and they’ll get the same level of benefits as you do (reported to their insured salary).

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I don’t know about as long as I want, they wrote this last year: “We can offer you a fixed term deposit for 12 months for 3 %.” This 12 month period ends this August, we’ll see if they can still offer this much then.

Wow! How do we become UBS pension fund members?
By the way, is there a Comparis style comparison website where I can compare 2nd pillars? How do I find a 2nd pillar with highest/riskiest returns? Should I hire a financial advisor? I’ll gladly do it. I’m panicking a bit now since you said 1.25 % is on the low end… :slightly_smiling_face:

No liquidity or long term needs for the company. I promise you. We can freely use this accumulated cash for whatever and the company wouldn’t suffer whatsoever. There will be no expanding of business and no new employees except us two. If the company goes bust tomorrow, we’re fine with it :blush:

Given this fatalist outlook we have on life, I’m questioning whether we really need to ask Swiss Life all these disability/death benefits questions. We’re so close to retirement (we could stop working and take out 2nd pillar at 58) that we don’t worry about disability and loss of income. Given that we don’t have children, if worse comes to pass, we’ll just move to a third world country, enjoy the sun and live off bananas and peanuts. Good health care is not out priority. We’re more of a fatalists in nature and have modest appetites :blush:

Given this “nonchalant” outlook on life, it is reasonable to change the 2nd pillar provider and chase higher (risk) returns with other providers, right? What would everyone suggest we do with our company cash in August when our fixed term deposit runs out? Like I said, this money is not needed and we’d be happy to invest it somewhere riskier where it can possibly earn 6-7 %.

Thanks so much to everyone for taking the time to help a complete stranger :smiling_face_with_three_hearts:

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UBS employees can participate in UBS pension fund. There is no comparison website for 2nd pillar interest credits (as it depends on lot of factors)

I would suggest to talk to Finpension, ViAC etc and get some idea on their plans. But yes 1.25% is minimum every 2nd pillar needs to give. So it is the lowest possible

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Actually there’s a rating of pension funds based on their performance. https://www.vermoegenszentrum.ch/ has some information about selecting a pension fund for a small business, but you will have to dig it out yourself. Most information is in German.

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Thanks, contacted.

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You shouldn’t go with Swisslife (or any big insurer quoted in the stock exchange) due to cost. You. should leave the contract when you can.
I strongly recommend to go with a non profit association 2pillar provider like:
-CP https://www.centrepatronal.ch/
-CIEPP
-asga

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Thanks! Can I assume these non-profits offer higher returns than Swiss Life due to the lower cost?