Just realised that I was on a thread that is 11months old (sorry) âŠIâll post my reply anyway for future readers (since I realised only after it was written): it is exactly the right question for a young person to ask. Disclaimer: I donât know what implications the B-Permit has on 3a investments (if any).
I agree 100% to the combined replies of @San_Francisco and @MisterB : first priority to maximising your 3a and investing it according to your risk profile (i.e. Finpension/VIAC etc). Tax savings, more aggressive investment opportunities and more flexible options for use in a future (direct/indirect) mortgage.
I want to simply stress that this requires discipline above that required by your pension coming directly off your salary. I really wish that I increased my 2ieme later than I did, using it intentionally as a bond part of an overall portfolio rather than my main retirement savings vehicleâŠwhile it is now very healthy, it represents 2/5 of my overall portfolio making it more conservative that it should be for someone my age/risk profile.
@Rshine : in your case, until your salary increases a bit, be aggressive and try to get to the 588 chf /month in 2023-2024 for your 3a since less cash flow early in your career will also hopefully help you establish a cost of living at a lower level, encouraging more savings potential as your salary increases and as you save for a future mortgage/retirement in a tax efficient wayâŠ
Iâve started to have this discussion with a lot of new (young) colleagues after seeing years where so many would lease a nice car with their first few salaires/bonuses and have nothing left for FIRE, 3a, or extra 2iemeâŠyou need to live and have fun but you need to make choices too ;)âŠthose choices are easier when they are as early as possible in your career.
Hi, I just realized I forgot to give an update, so thank you for remembering me with your late reply . Just after I posted this we found that my girlfriend was pregnant with our first baby and with all the excitement and preparations I forgot about the post.
Anyways, for the 2nd pillier I decided to contribute the minimum I can (3.5%).
For the 3rd pillier I havenât done anything last year.
Our cost of living is already low, we donât have big salaries but we still managed to invest a bit more than 40% of our salaries this year. Mostly on ETFs.
I will check the 3rd pillier again in a month or two when I have a better idea of the kid expenses as he will start going to childcare this month.
Congratulations on the baby!
Do you know what is the interest on your 2. pillar for 2022? It should have been announced already. If itâs the state-mandated 1%, that was a good decision to go with minimum. But there are some pension schemes that pay out more (like banks) and there it might be fair to consider higher contributions.
I think youâre right. In particular, it highlights an oft-misunderstood aspect of the second pillar on this forum, which is that the 2nd pillar can serve as part of your âbond allocationâ or risk buffer of sorts. A fair amount of people here target 100% equity with their allocation, so in that sense I can see where the 2nd pillar is unattractive. But if you use it as part of your âbond allocationâ, 1% is a decent return in 2022. Traditionally, one would use bonds in their portfolio, since they were somewhat negatively correlated to equities, but Iâm not sure that works so well these days. In the case of the 2nd pillar, it is a very peculiar investment vehicle, in that it is somewhat positively correlated to equities, but cannot have a negative return (roughly speaking), so this can be appealing to some investors (even ignoring the fiscal advantages).
Congrats on that return! I work in the field and havenât seen a single return that high in 2022. My guess is that your fund must be in a special funding situation, and possibly be an autonomous foundation (i.e. the private fund of your employer), so probably not so representative unfortunately.
In any case, in line with my comment above, I suppose itâs only exciting if one insists on considering the 2nd pillar as part of the equity part of their portfolio (which I realize a lot of people wish they could!).
Oh for sure. Thatâs what I meant by âspecial funding situationâ (e.g. high coverage ratio or Deckungsgrad). There are a lot of reasons why that high of an interest credit might have been possible. The asset allocation certainly is one (i.e. proportion of equity, real estate, etc.), although that doesnât vary too much between pension funds in Switzerland.
Now, not to get too speculative here, but one thing you see sometimes in these low-performance years, is that pension funds are all of sudden interested in revaluing their (direct) real estate investments. Since those are not really liquid and are only revalued every now and then, this can give a solid boost to the performance in such a year (or in any year). When a plan is already well funded, a good share of that money should be returned to the active members in the form of interest credit and/or to the pensioners (in the form of indexation, though more commonly just a single additional monthly pension these days).
Thatâs what happened in my case. Pension fund got a great return in 2021 that pushed the ratio above the target range. So they decided for an exceptionally high interest in 2022.
With bad performance in 2022 itâs back to normal now.
Well, my pension fund returned less than 1% for 2022. Once they have big enough gap to their obligations (Deckungsgrad) they can and apparently will go below the legal minimums. Rare, but happened with some funds in the past, you can also loose money.
I still count it as part of my bonds allocation, but it comes with the quirk of tax advantages and loss of control. If you get a good return that is awesome, but keep in mind that âtraditionallyâ you are tied to whatever future employers you end up with until you hit 65. If your game plan is to FIRE in a few years and then invest through e.g. VIAC or leave the country then that can make sense.
I suspect that your fund communicated 0% as an interest credit, right? Technically though, that would be the legal minimum of 1% on the mandatory part (i.e. BVG/LPP) of your account balance and a slightly negative return on the over-mandatory part. It is one of the first measures that pension plans adopt (i.e. overall interest credit of 0%) when they are underfunded.
Yes, that is correct. But this is exactly why my advice for @Rshine was to actually check the performance of the fund. Everyone assumes by default that the state-mandated 1% is what we get in 2. pillar, but some employers (e.g. banks and insurance companies) offer good pension funds and higher returns. Maybe heâs the lucky guy
My pension fund is very well funded and I am also offered to increase my contributions.
But I donât, and I wonât.
I find the 2nd pillar too uncertain for the time that separate me from retirement.
Will the option to take the capital still exist at that time?
What will the conversion rate be?
I may change jobs and then have to move my vested benefits to another (probably less funded) institution.
For my colleagues who are not investing their money otherwise (and not willing to go that way), I suggest them to increase their contributions. The opportunity cost of not having the tax savings and good yield from their current pension fund is too big compare to let the inflation taking care of their savings. However, as I am investing my savings, I prefer the flexibility of not having it locked in 2. pillar.
They didnât really communicate it very precisely, but I think you are right. The interest is below 1% but still positive. So maybe 1% on the mandatory and 0% on the over-mandatory part.
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âŠIâll post my reply anyway for future readers (since I realised only after it was written): it is exactly the right question for a young person to ask. Disclaimer: I donât know what implications the B-Permit has on 3a investments (if any).
⊠work to live not the other way around 
