You might have 3% savings and 2% risk contributions on your salary. Or 9% savings and 2% risk contributions. These 2% are flat and you pay them anyway, like an insurance, at least in the PFs I know.
I’ve never seen admin charges. In my understand they occur on the fund level, lower the return but are not deducted based on your contribution directly. But based on your screenshot, some funds do make them transparent, interesting.
Ah ok, I didn’t know that 
. In that case I agree, risk and mgmt fee don’t matter when contemplating the higher contribution plans. I must say I find it not easy to understand my pension fund report 
As I was taught in this thread.
Would the lesson here be to prefer investments you control over government systems (when given the choice)?
No 65% in 3 years is more like 18% per year, but that is not the point. Those investments cannot carry much risk. That is mainly why I don’t like it, my risk appetite is way higher (and I have a bigger return than the SP500).
So, you have to add your risk tolerance to the formula. Maybe you are better off with almost no return but tax savings and low risk. Or you are way better off without the tax savings and tax free long term capital gains. Take out your calculator and calculate…
You’re numbers seem quite high, I pay 0.75% of the insured salary for the risk part and the employer pays 2.25%.
But our pension fund is actually quite exceptional anyway, we had interest of 4-7% in the last few years, bonus payments are included in pension fund contributions, they contribute almost twice as much as I do.
Thank you. I’m becoming acutely aware that my understanding of pension funds is abysmal. Off to reading all the pension-related topics on this forum I guess.
There is different option depending on your employer.
Mine pay 4% for the risk premium and the nothing on my end.
Thank you all for adding the detail mentionning that an additionnal LPP contribution won’t trigger an increase of the insurance fees.
This part only applies to the obligatory portion of benefits. The pension fund can use a lower interest rate for the extra-compulsory portion if it chooses to.
The total tax saving should be accounted for in returns for pension funds and the pillar 3a. There is no standard way to do this, as taxes vary based on location, income, wealth, and other possible deductions. Then there is the fact that each pension fund has its own interest rates for extra-obligatory benefits, which again makes a canned calculation impossible. But there are definitely cases in which a pension fund can outperform other investment vehicles, when tax savings are accounted for.
Possible risks:
You should be using the marginal rate for pension withdrawal too for a fair comparison, based on how much of the existing pension assets you are planning to withdraw in the same year
I would suggest using the “current marginal income tax rate” for free investments and “effective withdrawal tax rate” for 2nd pillar (which I think was implied by TeaGhost).
But my point is that the 2nd pillar taxation is also progressive, so you should not be using the effective withdrawal tax rate but the marginal one, right? If you will be withdrawing anyway the 1M of existing pillar2 funds and you are debating whether to make an extra 100k buy in, you should look at the marginal withdrawal tax rate these 100k will be taxed, not the effective tax rate of 1.1M withdrawal
My thought process is that the income going to investment instead of extra pension contribution is taxed at your marginal income tax rate.
But the lump sum withdrawn from the pension is taxed at your “effective” withdrawal tax rate, which is a combination of various tax rates, up to and including the marginal withdrawal tax rate.
Or in other words, only a part of the withdrawn lump sum is taxed at your marginal withdrawal tax rate, but the complete pension contribution now is taxed at your marginal income tax rate.
The rates can be ‘fine-grained’ so there isn’t a single rate, so you can instead calculate the effective marginal rate for both.
Maybe it’s a terminology issue. In my understanding, the “marginal” rate is the highest rate applied to your last income bucket/slice. And the “effective” rate would be the total tax divided by the total taxable income (a mix of all rates in the progression table). “effective marginal” makes no sense to me (either effective, or marginal).
OK if you have say a withdrawal of 100k, and the last 10k is at 10% tax and the 10k before that is at 9% tax, and the whole 100k is at 5% tax, what would you call the marginal rate?
10% marginal rate, 5% effective rate.
(the rate at the “margin” / end of the progression table?)
ok. so if you had 80k in pension and were considering adding 20k voluntary payment to it, the rate applicable to this 20k difference would be 9.5%. which is neither the effective nor marginal rate.
so i call it the ‘effective marginal rate’ to distinguish between the true marginal rate of the last dollar and the ‘effective marginal’ rate applied to the potential amount of additional contribution.
I see what you mean by “effective marginal” now. Makes sense if you use the formula just for one year’s contribution.
In my mind I was plugging into the formula the withdrawal tax rate for the complete pension amount I’m expecting to withdraw when leaving the country, which I think would then be called the “effective withdrawal tax rate”.