Increasing ordinary Pillar 2 contribution = less taxes?

Hi all! Long-time reader, first-time poster here. It’s my first year in Zurich (moved over from Geneva), B-permit, over 120k income. My company offers me the choice of different Pillar 2 contribution categories - the employer’s contribution stays the same regardless of how much I put in. I’ve always paid the minimum, as did not see the returns in Pillar 2 as worthwhile. However, I am now looking to leave Switzerland in a year, so was thinking of increasing my monthly Pillar 2 payments to reduce the tax bill. I have seen that Pillar 2 buy-ins reduce your tax bill, however do increased ordinary contributions reduce taxes too?

Would love to hear your thoughts!

Yes, you earn less after deductions.

Yes but in my payslip, the witholding tax is the same regardless of my actual contribution (same % applied on gross salary, before deductions)…

If you’re earning more than 120’000 CHF a year, you won’t be taxed for income at source (withholding) anyway.

Only the canton of Geneva is (used to be?) an exception with a higher limit of 500’000 CHF.

I would have done the opposite. If you plan to stay for a short time in Switzerland or plan to leave soon, minimize the contributions in your 2nd pillar as much as possible.

Most likely you will have to transfer your money into a vested benefit account when leaving Switzerland. Your money will be blocked until retirement (few exceptions apply for a full withdrawal).

Isn’t it better to pay extra taxes and save money outside of the Swiss retirement scheme ? This money will be freely available when you move.

No, as a Permit B holder, I still get taxed at source, but then need to do a tax assessment at the end of the year due to earning over 120k

Only the mandatory contributions - and only when leaving / living in a EU/EFTA member states.

If he/she has a choice how much to contribute into the 2nd pillar, it is likely non-mandatory contributions that can be paid in any case.

Depends.

Many countries have capital gains and higher capital income taxes than Switzerland. The Swiss vested benefit account could be (likely is, in many countries) a non-taxable account, as long as it’s not paid out.
He/she might be able to defer (more) capital income taxes by keeping (more) on the Swiss retirement account.

…which will determine the amount of tax you have to pay according to ordinary rates. And then charge you/refund the difference to what was withheld, won’t it?

In other words: Does the amount withheld matter, if the amount is not final - but determined by the ordinary assessment?

Which country are you moving to? If UK the dual tax agreement means you might be able to take the extra contributions out and only pay Swiss Witholding tax. Portugal is also favourable, most other European countries are probably not

He will be still taxed at source. Taxing at source means that your tax is paid directly by your employer and this will not change. But yes, there tax office will compare the withheld tax against your tax declaration, then you might need to pay the difference or get some money back. This might take a few years.

Move to Ukraine, after a month move to your actual destination.

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Thanks everyone! I will be moving to a non-EU country (Middle East) with has a 0% tax rate.

The plan is:

  • Contribute the maximum I can now (through ordinary contributions - not buy ins) this year to save on tax
  • Once my employment ends, I have two options:

Either: move the pension to VIAC or FinPension and invest it in maximum equities
OR: Take out entire pension pot which I will be able to do since Im moving outside the EU

What do you guys think?

I’d take it, better to have the money unlocked.

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That’s exactly what I am trying to figure out. If I pay more into my pension now - through ordinary contributions, not buy-ins - would I get the tax back on that (via the tax assessment)? There’s a lot of info online on the tax-advantages of buy-ins, but nothing out there that actually states that ordinary contributions are also tax-deductible…

I had been increasing pension savings via an additional optional increase of pension deduction. If you do it, as a result, in your yearly salary certificate, for a given brutto salary (position 8) you get more money listed as a pension contribution (position 10.1) and, consequently, less listed as a netto salary (position 11).

There is not much to discuss: you get less netto salary + you file a normal tax declaration = you pay less taxes.

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Surely there are other factors to consider, such as if you should do it at all.
But the tax reduction should be straightforward.

Here’s the ZH tax declaration:

I think Pillar 2 goes under position 16.1.

By the way: it says in this point that you can deduct AHV. I put nothing. Did I made a mistake? :man_facepalming:

No, it is a part of a difference between brutto and netto salary.

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Ah ok, so AHV & BVG (pillar 2) are already deducted. So you put the net salary from the Lohnausweis. So in case of @Hemingway, he would not put any pillar 2 deduction explicitly, he would just put a lower income. Yes? (and in my case I also didn’t make a mistake)

In a yearly certificate:
Brutto salary (total) = position 8.
AHV contribution = position 9.
2nd pillar = positions 10.1 + 10.2
Netto salary = position 11 = (8) - (9) - (10.1+10.2)

Yes.

And yes (sofern nicht unter … abgezogen).

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Hi everyone!

I have a similar question. I’m going to stay in Switzerland for a long time and I don’k know if it’s a good idea to contribute (buy ins) to a 2 pilar. Not all my cash of course because I buy ETF every month etc + 3pilar too

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