I‘d wait to pay in until later in your career, where salary and progressive taxes will be higher. I‘ll probably only pay in a few years prior to hitting FIRE to increase Bond-Allocation (if it then makes sense to invest pension in Bonds)
Cortana,
My view is that we can’t predict what we will do, even though we wrote investment plan. Your Situation may change and you may decide to behave differently. (E.g buy or not buy a property, stay in Switzerland or leave, etc.)
It’s best to be balanced in my view. Contribute normally to your pension fund, don’t minimize your payments. This may come handy when you buy property. Or if you don’t, you may be happy you contribute fairly to your pension fund if markets stagnate for 20 years.
Key to success is simplicity rather than over optimization.
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I recently started a new job and there was a reminder letter from the PK to transfer the previous funds otherwise the benefits incase of death/sickness might be reduced.
In this case max contributions might be better than buy-ins because the buyed in amounts are locked for 3 years. Due to tax avoidance reasons (well you can get them but you might be taxed at a higher rate).
It depends of the pension fund and its regulations. In my situation, the disability pension is calculated on my expected capital at 65.
That’s illegal. I won’t advertise it too much publicly…Some pension fund may not enforce the law (because they count on the good faith of their new employees ?), but it remains illegal.
Source ? Freizügigkeitsgesetz, FZG
Aren’t there actual cases where it’s ok. Per Art 13, there are cases where you might have money left over.
Does anyone knows what “vollen reglementarischen Leistungen/prestations réglementaires complètes” means exactly? Does that only cover the mandatory part?
Indeed. That’s one of the exception.
Let’s say you have 400K to transfer but your new pension fund calculated your capital to be 350K at this age with your expected salary.
The delta could be transferred in a vested benefits plan.
The type of foundation: Obligatory, sur-obligatory or enveloping could impact the "vollen reglementarischen Leistungen/prestations réglementaires complètes” calculations.
If the BVG minimum is 6% and me and my employer paid 15% into my pension fund in total, I only need to transfer 40% of my pension fund to the new employers pension fund.
Anyway, how will the new pension fund know how much they should expect? They don’t know how many years I worked, what my salary was and what the contributions were in that time.
It’s offtopic anyway as my main question still isn’t answered 
To recap:
- I’m 30 years old.
- Marginal tax rate: 25%
- Contribution options: 2/6/8% while employer pays 7%.
- All insurance benefits are linked to the salary, it doesn’t matter how much it’s inside.
- I’m already hiding 18k 2nd pillar assets at ValuePension (currently worth 24k as it’s invested 99% in stocks). Nobody ever asked. Will do this again when I change my employer.
- I’m thinking about buying a home within the next 5-10 years.
- My goal is to retire within the next 25 years.
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Then, this, to me, would be purely a choice of asset allocation between pretty safe bond-like assets returning 2-3% + tax savings in good times (no certainty it will hold during a downturn) and other assets (stocks) in a taxable account. I’d take the asset allocation approach, so
This:
And this:
Tell me that you’re not interested in bond-like assets at the rates you’re getting and would rather have at least a part of it invested in stocks instead. As long as you hold this ValuePension account, I don’t see a point in otherwise increasing your contributions to your pension fund. That’s a big appetite for risk which, I hope, will hold during a downturn. I would probably like to have more safe assets myself.
The problem may arise when you start to plan to leave the workforce. 2nd Pillar buybacks may not be possible while having a vested benefits account on the side. You may also loose tax defered space by changing job if your contributions/your employer’s contributions don’t match your current options. That may need some planning.
Also:
Are you willing to delay that purchase if stocks plummet and make selling them to buy real estate a bad deal?
Edit: to make my thinking more clear, to me, your current policy makes sense given your stated desires for a very high stocks allocation. Stocks outperformance relies on the risk premium, though, and the risk, whether it materializes or not, is there and very real. I’d make double-sure that this is what I want while stocks are (still) high and changes in allocation can be done with little bad consequences.
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My new employer already pays in 18%.
With that I see no point in contributing any more than the minimum of 0% (other 2 levels are 4.5 and 9).
At least in my current life situation and target asset allocation, given that the 2nd pillar now grows quite more intensively than with my former employer.
P.s. @Cortana - A house in CH or abroad?
Both, but CH is my focus. The house in Bosnia is 20x cheaper (I already bought the land this summer) and is meant to be my FIRE headquarter in 20+ years.
P.s. I decided to change to the highest pension fund contribution beginning in January 2022.
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I’m curious how this is possible. Usually, Ausgleichskasse only allows a split up to 30% (employee) / 70% (employer). So you are not paying any contribution for you P2?
18% is a lot, especially if you are under 30 (if I remember correctly)
7% for 25-34
10% for 35-44
15% for 45-54
18% for 55-65
That’s the BVG minimum of which your employee has to cover at least half of it. Anything above that is non mandatory. So if you have a shitty pension fund and you are 35-44 years old, it will be 5%/5%. If you have a great pension fund it might be something like X/15% with the option to chose your own contribution X. That’s why you could potentially chose 0% because those 15% from your employee already cover the minimum of 10%.
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Thanks for the info, but you are not telling me anything new here about the minium rates 
I don’t agree with this statement, and afaik it’s not allowed due to regulations. More than 70% payed by the employer is raising red flags with Ausgleichskasse. Hence my question towards dbu how much he actually contributes.
More than 70% of BVG paid by employer is also a red flag for the tax authority because you can lower total AHV contributions and taxable income through BVG trickery. It’s doable and legal, but makes everything unnecessary complex and will require additional adjustments (or rulings).
If the employer voluntarily pays the employee BVG contributions, the relevant AHV income still has to include those contributions (unlike the regular employer BVG contributions). Otherwise, their AHV contributions would be too low.
See “Massgebender Lohn” => “Berufliche Vorsorge” at AHV-Beitragspflicht: Arbeitgeber
I understand how this would unfairly lower AHV contributions. However, BVG contributions are never part of the taxable income, so I don’t understand why the ratio of employer/employee contributions would affect the taxable income. What am I missing?
I don’t think there is a limit set by the law. But normally only independent can select 0% on the employee side
BTW, You could also reduce your taxable income with pillar 2 buyback, but not AHV.
Not really, there is an acceptable limit as mentioned by @1742
Exactly, no impact.
However, an employee with the minimum pillar 2 plan will maybe have a higher taxable income than an employee with a better pillar 2 plan.
It’s a little more complex than that. Because you need to know how much of the salary is covered.
The minimum coverage is from CHF 25’095.- to CHF 86’040. Some companies will insure from 0 to CHF 86’040, others will ensure your whole salary.
Moreover, in the public sector, some pensions don’t have enough money, so you and your employer will pay a lot into the pension fund but one part will be used to avoid insolvency of the pension fund.
In short, always ask what is the pension plan when you take a new job. And insist to have all the info because I have seen a lot of managers et HR who have no clue on this topic.
Like @1742, I’m not sure why Ausgleichskassen would be particularly concerned or why it would be limited to 70% (in some cases it happens to be higher). I’d also rather expect the tax authorities to scrutinise.
While they may not be taxable income for the employee, they’re still effectively (even if indirectly) some sort of “remuneration” received from the employer. But one that isn’t tax-neutral on multiple fronts:
- Employers can deduct pension fund contributions from their income.
- Tax deferral: Employees don’t pay taxes on the contributions - or their subsequent returns - today until later (when they may be subject to lower marginal tax rates)
- Special tax rates: There are special, preferential tax rates in place for capital payouts from pension funds, which are not taxed as ordinary income for the (former) employee.
All in all, that offers considerable leeway and room for tax optimisation - if not downright abuse - that tax authorities may understandably want to limit.
Higher contributions definitely have tax benefits and they need to be limited. There is a 25% limit, if I remember correctly, but I don’t know the details.
However, if I’m not missing anything, all your points are related to the total contributions. I don’t see the split between employer-paid and employee-paid contributions having an impact on taxable income.