Pillar 2 turbo-charged

Banks, Insurances & Third Pillar
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With the current entrance of VIAC in the market for pillar 2, it‘s time to step back and ask ourselves, whether there are better ways to save our money.

Let me outline my rough idea.

Idea

Let your funds grow outside the traditional retirement fund and move your money back to get an annuity.

Transfer pension funds to vested interest account (Freizügigkeitslösung) invested in stocks every time you change jobs to achieve market performance and bring the funds back into your pension fund before retirement age to get a guaranteed pension with higher returns than a typical safe withdrawal rate.

Benefits

  • Let your capital grow outside the normal pension fund restrictions
  • Having two accounts lets you spread the market risk of bringing money back to retirement plan
  • Vested interest accounts are tax exempt
  • You can profit whether you FIRE or not

Counter arguments

  • No christal ball
  • You may not find a job age 64
  • Nobody knows what the retirement system will look like in 30+ years

Scenarios

  • Best case: Stock market returns during accumulation phase & big guaranteed pension after official retirement age
  • Worst case: Market crash when approaching retirement age and not able to find a job

Questions

  • Do you see legal problems with such an approach?
  • Is there big risk besides not being able to predict the future?

Reflection

IMPORTANT NOTE: This post was not intended to propose any unlawful action. The author explicitly distances himself from such behavior.

Often times, it is a successful strategy look at an idea in an extreme form to uncover blind spots. One major blind spot that has been pointed out by the resourceful members of the forum is, that you must transfer your capital from a vested benefits account into your pension fund if you start a regular job again where you contribute to a pension fund. Thank you for stating this clearly.

For me, the discussion has been very valuable since it means conversely, that someone who FIREd and has his money in a vested benefits account has to take into account that he must transfer his money back to a pension fund if he rejoins the workforce in future.

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Hey Mago,
I also think my fundswould be better off with an index portfolio than the (current) pension fund system:

  1. Umwandlungssatz (you my call it “safe-withdrawel-rate-equivalent”) keeps falling, from historic 7.2% to currently just above 5%, likely to approach a value that represents an sustainable SWR for a not-so-agressive portfolio (lots of bonds) with capital consumption after the then-current life expectancy.
    Hence I do believe, and this is a belief, that, once I “retire”, the annuities granted via pension funds will not be superior to living off an index portfolio unless someone else pays for it.
  2. as opposed to an index portfolio, your capital drops to zero once you take the annuity.
  3. Due to the inherent financial imbalance of the current system, and it’s snowball-ity, the government wants people to keep their money in the system. I dont have a source at hand, but there are initiatives to block people from withdrawing their funds on retirement in the future.
  4. I do not believe there will be swiss politicians who are powerful enough to seriously reform the system and make it sustainable
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This thread is basically a copy of this this existing thread on it.

Sure, this is a small and unimportant forum, in the grand scheme of things.
And it’s in a non-native language in Switzerland.

Have you spelled out your intended abuse of the system? As clearly as can be.
Is the system (as set by law) “rigged” to benefit certain actors? Maybe.
So is it morally “wrong” to do this? One has to decide for oneself.

With the soft stance it is currently (un)enforced? Not really.

As I mention to someone privately, a couple of days ago: The valuepension people conveniently “forgot” to tell you in their FAQ that your benefits have to be transferred to a new pension fund upon becoming insured. This process might become (semi)automated though, by putting in place a reporting system.

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I truely hope that the whole system stays the same. Forcing me to accept a low return solution and then forcing me to take the pension instead of capital…horrible scenario.

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Thanks for the reference. I was browsing through that thread but could not find my thoughts reflected in it.

I surely do not want to abuse the system but use it in the way originally intended: Saving capital for myself which I get a pension from.

The only problem I see is with disability insurance and child’s insurance which is not covered.

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Yes, I also usually forget about everything the pension funds provide apart from the pension, like widow rent, etc. These greatly contribute to the “low” performance of the pension funds.

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It’s usually related to the salary, not to the capital. So no harm done when investing part of your 2nd pillar in VP oder Viac.

@ElMago
I intend to do the same thing. Just not taking the pension when I retire.

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The current system is rigged. Currently, the Umwandlungssatz is around 5.5-5%, the right number should be 3.83% (as calculated by PCCmetrics).
So currently, working people are paying for retirees. It is also why the pension is a lot higher with a pension fund than taking annuities from insurance (both are the same financial products).

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The mandatory part is even at 6.8%, way too high, especially for women that retire at 64 and live for 25 more years on avg. :open_mouth:

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IIRC there is already some kind of centralised reporting, I’m wondering if they are actually acting on it or just letting it go for now.

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Every institution has to report to the Sicherheitsfonds in Berne annually.
But the data isn’t used to “enforce” transfers to pension funds AFAIK.

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That is what I was wondering. I guess we’ll see, I certainly wouldn’t want to test it myself.

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Thank you for your detailed answer

I was not aware of this and didn‘t find anything official that says so. Is there some official reference you base your statement on?

I see that I made a trivial mistake: I wanted to sketch out a strategy that can be useful for anyone whether they are on the path to FIRE or not. My personal situation is quite a bit different and more likely to have a one transfer to vested benefits account once I quit traditional employment.

Thanks for anyone pointing out that the scenario outlined with leaving (all) funds on the vested benefits account and not transfering your salary is something unlawful! Even though this was not the main point I wanted to make.

Still, if you pursue your path to FIRE you could end up with the scenario that your funds compound in a vested benefits account, no matter what your intentions are, and you have to bring them back to a pension fund because you accepted a job. Might be a good or bad deal, depending on the circumstances.

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I guess it’s in the LPP (https://www.admin.ch/opc/fr/classified-compilation/19930375/index.html)

But I think it’s more nuanced, you have to cover the “entry fee”. It’s even possible the pension fund won’t accept all the money (e.g. if it only has mandatory coverage while your previous employer didn’t)… in which case you’re kinda force to have it elsewhere.

Relevant articles are 12/13, I think.

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Since you said it, that might be one of the best examples of what’s “wrong” and why the system is rigged. And grate me most about it.

In my view, these 1e plans basically amount to a form of legalised tax evasion and privileges only available to the rich and high earning.

That’s why, frankly, (and regardless of legality) I can understand people to have no moral objections about “hiding” pension fund benefits and not having them transferred to the new employer.

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VIAC clearly states in its FAQ that what you are proposing is not allowed.

As someone else noted, there is an unpredictable risk associated with this. Not to mention it is against the Swiss laws. I don’t think this forum should be promoting activities that systematically try to circumvent and break Swiss laws while pretending to be ignorant about it.

It would not take that much effort by the authorities to track you down when and if they decide to do so.

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2nd pillar is your money. You don’t avoid any taxes, you don’t steal anything from anyone, you are just trying to get a higher return on your retirement assets.

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