Looking for advice: 2nd and 3rd Pillar

[MisterB]

As I mentioned in another thread, the decision to buy-in and/or contribute more to the 2nd pillar (or 3rd) is heavily dependent on your assumptions about the future, which is to say that it is (at least in part) very specific to every individual.

In essence though, as @Burningstone mentioned earlier, it boils down to the comparison between:

1. how much that money is expected to return outside the fund, and;

2. how much that same money is expected to return in the pre-tax vehicle (i.e. 2nd/3rd pillar) plus the expected returns on the tax rebate/refund it generated.

There are many other factors to take into account (as already mentioned in this thread), such as current marginal tax rate, investment horizon, lump sum tax rate and/or domicile at the time of withdrawal, etc. I have just recently posted a small tool in another thread that can help you think about all these different factors (and allow you to plug in your own assumptions):

Swiss 2nd Pillar capital withdraw versus Canada taxes

Hi Caribou. Happy to share the spreadsheet with you. Your email has disappeared from your message though, probably removed by an admin. So I’m not sure what’s the best practice for sharing files here, but I’ve put it on my google drive for now. Let me know if that doesn’t work. Here’s the link: The spreadsheet is pretty simple, and can probably be improved tenfold, but I think it gets the job done. Indeed, its objective is merely to determine whether making a buy-in could be advantageous or n…

As you will see, the “investment horizon” is one of the most important variables. Indeed, when you make a buy-in or contribution into the 2nd or 3rd pillar, the tax rebate/refund is practically guaranteed, giving you an immediate boost on the return. As years go by though, this early head start will erode in comparison to the higher returns you could make outside the fund.

I mention this last point because this is what got my interested in this topic in the first place. Indeed, as a foreigner myself initially (now Swiss as well), I had “definitely” left Switzerland a few times already, cashing my 2nd pillar in full (note: it would be only the over-mandatory part for European citizens). In such cases it’s possible to have your 2nd pillar transit through Schwytz for instance for a better lump sum tax rate. Therefore, if for some reasons you think you might only stay for a few years in Switzerland, the “investment horizon” is relatively small, and the 2nd/3rd pillar contributions might look like a better financial transaction. Unfortunately, as @Barto just mentioned, it also depends on where you are going back to (with regards to the local tax treatment of that lump sum), and that opens up a whole 'nother can of worms!