Repayment plan for 2° pillar withdrawal

Investing / Portfolios
1

Hello everyone!
I would like your advice/opinion.
I withdrew my second pillar for the purchase of my home.
Now I would like to put in place a repayment plan for this withdrawal. Here are my questions.

  • Deposit the money with a monthly payment to the same pension fund to cover the withdrawal over 10-15 years?
  • Pour the money into finpension,viac, truewealth, etc.. (robo advisor) so as to invest it with perhaps better annuities?
  • Split the deposit between pension fund and a robo-advisor listed above?
  • How to invest like a pension fund does but independently?

Put the money into my pension fund could perhaps give me more security but that would imply that again my capital would be locked up and also I am not aware of what and how they manage my capital.

Investing through a robo-advisor would give me much more flexibility on my savings however how much more or less secure is it compared to putting it back into the pension fund?

The time frame in which I will need this capital is approx. 20 years.

Thank you for your suggestions.

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2

If you are talking about 3rd pillar, there is hardly any reason not to do this, but the amount is limited and it is not the same as 2nd pillar.

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3

Look at the history of your pension fund. If their interest was below 2% most of the time I wouldn’t bother paying the money back in and rather invest it myself (prioritise 3a before).

If you want to do renovations after 5 years you could aggressively pay into the pensions fund just to pull it out again in 5 years and save taxes in the meanwhile.

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4

Hi! No, I mean robo-advisor to invest not for the 3rd pillar.
Viac invest, finpension Invest wealth, etc…

5

Hi! Yes but I can have access to this funds only for this (Either move out of Switzerland or be self-employed…)

6

In this case, you should first decide if you pay into 2nd pillar or not. How you invest your taxable funds comes afterwards.

7

that’s exactly the question. is it preferable to pay money back into the second pillar or to invest it independently with the pros and cons that come with it?

8

The main advantage of repaying is if you want to get annuity when you retire (or you don’t trust yourself with investing).

Given it’s a repayment there would be no tax benefits.

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9

A slightly tangent question: what amount of repayment into the second pillar is exempt from the tax benefits, the total amount you withdrew or only the sum of the past voluntary extra payments that you withdrew?

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10

IIRC, total amount.

11

yes exactly, I fully agree. My idea, at this time, is to withdraw the whole capital. no annuity then.

12

The total amount:

  • The amount contributed to a pension fund is income tax-exempt, no matter the way of contribution.
  • When you withdraw, you pay a reduced tax on the whole amount.
  • If you can get a full income tax exemption on additional contributions before you repay your withdrawal, the system is not in balance. It is unfair, there is an arbitraging opportunity, etc.
13

Thanks. But to be sure: only the extra voluntary payments you do to “refund” your withdrawal would be not-tax-exempt, right? The normal contributions from your salary would be tax-exempt anyway, even when you start filling your pillar2 from scratch again after a withdrawal?

14

Yes, that’s correct. Only repayment are impacted (but then you get the tax you paid on withdrawal back).

15

An interesting option, also for OP, is if you can choose a higher own contribution to the pension fund. You refill it and the contributions are tax-exempt.

Drawback: your “debt” to the pension fund is not decreasing, so you may end up with more money in the 2nd pillar, but still no possibility for tax-exempt voluntary additional contributions.

16

You have two options.

  1. Pay it back. You refill your pension fund and eventually get back the capital tax you paid when getting the money out. This will give you again some buy-in potential in your pillar 2 but will likely take many years to get there.
  2. Don’t pay it back (just contribute through your salary) and keep the larger gap. You won’t be able to make a pillar 2 buy in as a tax optimization.

Which one is right for you depends on factors like age (how far are you from 60/65) and whether you prefer having a pension (security) over the capital (flexibility). And obviously having enough savings that you can actually put money back into pillar 2.

The “security” question if probably the most important one, personal values always come before other considerations. The optimal strategy is worth nothing if you are spending sleepless nights agonizing on your future financial security.

The financial optimal solutions depends on many parameters:

  • how much interest you pay for your mortgage
  • how much interest you get on your pillar 2
  • your canton of residence (the capital tax changes wildly between cantons)
  • your marginal tax rate

My impression is (gut feeling and no numbers done so please prove me wrong here), is that once you have the money out of pillar 2, it’s probably not worth it putting it back, the leverage you get is not that big. But then you need to actively build up your own savings and investments on the side to compensate the loss of pillar 2 as either a pension or cash once your retire.

At least I assume that now your mortgage will probably be reasonably low. Keep in mind that you will have to refinance it some days, and whenever you do it the bank will asses you again. Today you are working and have an income, but once you stop working and live from your savings, the bank may decide not to refinance.

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