Is it worth backfilling my first and second pillars?

[Your_Full_Name]

Thanks for laying out the blue print of the calculation plan.

As mentioned, I initially thought I’d just take one for the team and pay whatever is suggested in the referenced form. According to my projected calculations I’ll still get by and the kiddo will still look at a large sum when my spouse and I … move on.

I believe I’ll now actually run the numbers, and if the difference is quite significant™, maybe I won’t pay in what I am supposed to pay in with the seeming downside of not getting the maximum AHV payout (but overall I’d still come out on top).

Fun discussion!

(sorry for derailing the original topic)

[Brndete]

@Your_Full_Name

sorry for derailing the original topic

Well, this actually was the original topic, wasn’t it?

[PhilMongoose]

If you have a very high salary for enough years then you’ll reach the ceiling for how much pension you will receive (this is capped to a maximum salary).

However, you might not actually receive the maximum because once you calculated what the maximum based on capped salary contributions you made, you also have to consider whether you made 44 years of contributions. If not, you reduce proportionately. This is even if you contributed, say, 22 years at double the maximum salary. The averaging of salary doesn’t help to make up non-contributing years.

[hanem]

@PhilMongoose

However, you might not actually receive the maximum because once you calculated what the maximum based on capped salary contributions you made, you also have to consider whether you made 44 years of contributions.

Exactly, this was my thinking as well, even if you have contributed the maximum, you will be penalised by the number of years.

@Your_Full_Name

As others have already suggested, you may only be able to backfill for the years that you were AHV-pflichtig in Switzerland but did not pay AHV (e.g. as you didn’t make any money) – if you moved to Switzerland last summer last year would be the first year that you were obligated to pay AHV.

@Abs_max

AHV -: only allowed to be back filled if you couldn’t contribute when you were eligible. If you are not Swiss and you lived outside CH, then your clock starts when you join CH. If you are Swiss and were living outside then you should check with AHV how to back fill.

This makes sense. Thank you both!

[hanem]

@hanem

More context on BVG. I’m 34, I have 20k in contributions. AXA is telling me that I could backfill ~700k CHF in total.

Because we’re in CH for less than 5 years, they would allow us to do a yearly maximum of 28k backfill. Now. I’m wondering if it is legal or would be logical/beneficial to backfill this year and the next, and buy a property pledging BVG.

With AHV settled. I’m back to BVG.

Can backfilled BVG be pledged before the passing of 3 years of the backfill? Or same rule applies as to withdrawal.

If the BVG can be pledged and I decide to do the 28k backfill. How can I calculate total deductions?

Is it total gross income for the year minus the backfill amount? or there are other factors as well

[Abs_max]

Whatever you put in BVG (and are allowed to contribute based on pension fund rules) is tax free.

I think if AXA says it’s 28K, then 28K could be deducted I guess

[PhilMongoose]

Pledging is just offering up the pension as collateral. A bit like putting house as collateral for mortgage debt. So you can pledge pension at any time. Of course, if it is called, then it depends on the mechanics of the agreement. I’ve never done it so can’t say, but I can imagine in the worst case, you will be forced to withdraw the pension and use it to pay the debt. If this is within 3 years, you then also need to pay back the tax deductions you received.

[hanem]

@PhilMongoose

but I can imagine in the worst case, you will be forced to withdraw the pension and use it to pay the debt. If this is within 3 years, you then also need to pay back the tax deductions you received.

This doesn’t sound that bad.

I’d either way have to keep a lump sum of cash, worst case scenario I’d have to withdraw and pay back tax exemption.

Have emailed both our company pension advisor and AXA, and will see what they come back with, still, this seems to be promising and a good potential saving overall.

Thanks for the reads and advise!

[Abs_max]

I think if you are intending to take money out soon, then putting it in BVG might be seen as tax avoidance.

Voluntary contributions are meant to boost pensions and should not be seen as means to have tax avoidance

So just be aware of that.

I know there is no way to prove it you decided it upfront or you decided to take money out after you made tax savings.

[hanem]

@Abs_max

I think if you are intending to take money out soon, then putting it in BVG might be seen as tax avoidance.

I wouldn’t want to take it out, only to pledge it.

I don’t want to go in any direction that would need interpretation from their end. I thought this would be a common enough optimization for foreigners buying properties.

Either way, will update the thread once AXA or company comes back with an anwer.

[Quack]

@Abs_max

I think if you are intending to take money out soon, then putting it in BVG might be seen as tax avoidance.

Voluntary contributions are meant to boost pensions and should not be seen as means to have tax avoidance

I’ve heard this before but really don’t get it at all. If you make voluntary contributions you get a tax deduction. So clearly people are going to do this in order to profit from this incentive. That’s the whole point, and the only point. If you would increase your pension but still have to pay the tax, you wouldn’t do it. So why is it considered tax avoidance to make voluntary contributions and use the capital for other legitimate uses of pillar 2 assets?

[PhilMongoose]

@Quack

considered tax avoidance

Putting money in 3a or pension is tax avoidance. Whether you buy a house later, or just use it for pension.

[Abs_max]

Because in Switzerland the objective matters and the spirit of the law.

Govt allows use of pension money to buy home because home is important at time of retirement to have a home.

Govt also allows voluntary contributions to boost pension because it’s important for retirement

But if someone intentionally contribute to BVG with sole purpose of withdrawing after 3 years to buy a house. This in my view is not the spirit of the law.

I am not saying it’s tax evasion. I am saying it can be seen as tax avoidance. I am not saying people don’t do this. But this is not what the purpose of these laws is. One fund manager told me that these rules of 3 years lock in were introduced specifically to discourage such practices.

I am more or less certain that in few years , there wouldn’t be any staggered withdrawal advantage and then such advantages of voluntary buy and withdrawal (quickly)would also go away.

Please don’t think I am proposing not to buy house with pension fund money. I am just saying that one needs to be carful while devising a strategy that is on purpose built to reduce taxes.

As OP mentioned , they don’t intend to do so anyway. So all good.

[Brndete]

@Quack

I’ve heard this before but really don’t get it at all.

It can be complicated, and maybe some gets lost in translation including mine.

• Tax avoidance as in German Steuervermeidung is fine. Yes, you do something to pay less taxes (legally). It’s ok, really😉
• There’s Steuerumgehung which could be translated as both avoidance or evasion. It’s not illegal, but you won’t get through with it, e.g. you can’t make a deduction or have to pay-up later. There’s three condition the tax office needs to prove, incl. improper use to obviously avoid taxes.
• Then there’s tax evasion, which is against the law. It can be split further in tax evasion or Steuerhinterziehung, which is only a violation that will be fined, and tax fraud, Steuerbetrug which is actually a crime.

The law can try to prevent tax avoidance, which is does with that 3 year waiting period after buy-ins. After those 3 years, you’re good to go

[1742]

@Brndete

After those 3 years, you’re good to go

In practice that is correct. In theory, it’s not as black and white. Let’s take the following scenario: You find your dream house in 2024 and want to buy it. You are a high earner and have the money to buy it, but you still check mortgage rates and realize that you can get a 3 year mortgage for next to nothing. You devise and act on the following plan in this order:

(1) Max out your pillar 2 with a large buy-in of let’s say 300k in 2024.
(2) Buy the flat with a mortgage you fix for three years. Use pillar 2 you just bought-in as collateral.
(3) Use those 300k after the 3 years to pay down your mortgage.

This can save you quite a bit of money (specifically it saves you your marginal tax rate minus your privileged withdrawal tax rate minus three years of interest, could be as much as 25%).

If that plan would be fully known and provable by your tax authority, they would rightfully drag you through the courts and tax you fully as income on this amount. Again, quite theoretical, but your intent does make a difference, i.e. if you buy-in and find your dream house afterwards, or if you buy-in fully with the intent to withdraw after having the specific house already in mind.

[Brndete]

@1742

If that plan would be fully known and provable by your tax authority, they would rightfully drag you through the courts

Obviously, there’s a grey area.

Yet how is the tax office in this example going to prove that you are not sleeping well due to realizing that you are not comfortable with the high level of debt, after all, now that the mortgage is up for renewal. And therefore changed your mind from pledging to amortizing?

If you buy-in to eventually have the option to amortize, I’d be suprised if any tax office sees an issue with that. With indirect amortization via 3a, this is even kind of Institutionalized, there’s not even a waiting period.

[1742]

@Brndete

With indirect amortization via 3a, this is even kind of Institutionalized, there’s not even a waiting period.

Correct. But pillar 3a and pillar 2 only feels comparable to you buying in. The political background (i.e. the intention of why such a buy-in is tax advantaged) and the legal restrictions are quite different.

[hanem]

AXA got back to me.

I first asked if I can backfill and pledge.

They might’ve translated to german from english and got only a partial answer.

Anyone who pledges the pension fund assets instead of withdrawing them can continue to make voluntary purchases into the pension fund. Please be awart that in the first 5 years after moving from abroad to Switzerland the purchases are limited to 20% of the insured salary per year . After an advance withdrawal, voluntary purchases are only possible again once the advance withdrawal has been fully paid back into the pension fund.

This is inline with what you guys suggested of insured salary. I guess stock compensation and bonuses usually are not a part of the insured salary.

I pressed on to clarify that I wanted to backfill then pledge.

Yes, pledging the retirement assets and purchase before or after is not problem. You can do the purchase and claim the tax advantage and still pledge the amount. And you can do further purchase after.

With a withdrawal further purchase are not allowed; only after the withdrawal is paid back in full.