Should I consider my 2nd Pillar as part of my Net Worth?

Investing / Others
1

As the title suggests, I don’t know if I should consider the 2nd Pillar as part of my Net Worth calculation. Consequentially, if I should consider it in my FIRE calculation, too.

For context, I’m not Swiss, and I come from a country where the social system is no good, and that you shouldn’t rely on it for your retirement.
Now, I know Switzerland is a far better place and the social system works and all. But will it in 15/20 years time? I plan to stay for longer, especially because my children are growing up here.

I have around 70k in the mandatory part of the 2nd pillar, and about 10k in the over mandatory one. Likewise, I know the mandatory part can be used for several reasons, but the over mandatory will stay there until retirement.

I honestly don’t know what to do. Certainly, this will boost my numbers and make me feel more secure. But is it something I can rely on?

I’m seeking the community knowledge/opinion here.

  • Yes
  • No
0 voters
2

2nd pillar is part of your net worth …the only difference is that you need to pay lump sum taxes at time of withdrawal and you can only access at time of retirement

Other than that, it’s your money in your account

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3

I will count it as well in my net worth as bond allocation during working years.
If you retire outside of Europe, you could cash it out as lump sum and invest it in shares. If you retire in Europe, you could also use it as capital investment in your Home reducing the housing cost in your budget plan.

At the time of retirement, you could count on it at your retirement age. So you could adjust your safe withdraw rate not counting on it until your retirement age. At your retirement age you could take the annuity and adjust the SWR.

NB: you should deduct the taxes applied to it for lump sum depending on your country of retirement. Guess it as 5-9% if you cannot project yourself.

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4

That sounds very unusual to me, are you sure?

Wouldn’t it be rather an analog of 1st pillar in Switzerland?

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5

That sounds very unusual to me, are you sure?

Well, if I look into the pension certificate for the over mandatory part, I see “Early withdrawal and pledge” set to 0.-, and I’d like to point out that I never ever used this money (and I don’t plan to).

Wouldn’t it be rather an analog of 1st pillar in Switzerland?

In fact, I believe it would be foolish to add your state pension (1st pillar) into the Net Worth or for the FIRE calculation.

6

Yeah, the good old dilemma of getting it as a lump sum.

I hope that by when I retire, the system changes and allows you to take out the money without the need to “fake” move out of CH.

7

You don’t need to fake move out of CH to withdraw

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8

Taxes on 2nd pillar are quiet attractive in Switzerland.
Most of the sotry, you will read on this forumis foreigner returning to their home countries.
Also retiring early in Switzerland may require an higher annuel spending amount inflating your FIRE number with a suistainable withdrawal rate.
I have shared interesting links on these topics on my presentation.

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9

The amount paid into 2nd pillar will be available for this after 3 years, I think. If you just started, the pension certificate will show correctly 0 available.

Could be something else, I don’t know. You can ask your pension fund for explanations.

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10

Or if it represents how much you have withdrawn/pledged, then it will be 0 if you have done none.

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11

I remember that independent, retirement consultants paid by a previous employer advised to not rely on the 2nd pillar for anything because of the long time horizon and the high likelihood in change in conditions - and that was an employer famous for the outstanding conditions of the pension fund. My view is not to expect any cent out of anything where I don’t have direct control.

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12

I use this idea as my guiding principle to ensure I do the best I can, then anything else I will look at as a freebie, but that doesn’t mean the 2nd pillar is bogus.

Remember the Swiss pension system is a very nice combination of redistributive (1st Pillar), personal/private (2nd Pillar) and fully capitalized if one wants (3rd Pillar). The redistributive part is the smallest, and the private is the biggest by design. I wouldn’t be afraid that the 2nd Pillar of Switzerland goes bust, in essence it is almost free from this risk: this is your own money. Conversion rates etc make it complicated and I believe sweet vs sour 2nd Pillars (in terms of conversion rates) will eventually even out, but it won’t be any time soon, talking about decades in my opinion as there are way too many strong interests protecting sweet 2nd Pillars.

You can’t get to your 2nd Pillar at will, but this doesn’t mean it’s not part of your NW. I keep track but only once per year or so when they send me the certificate.

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13

These independent advisors are crazy. 2nd pillar is literally an account in your name and in most cases, capital is preserved every year with some interest.

It would be very weird to not count on biggest savings account one can have. Where one is forced to contribute, where employer also is obligated to contribute and provide interest

Don’t get confused with AHV which is more like state pension in other countries

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14

Nah they’re not crazy, they’re doing a job.

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15

If you want to buy a yacht, the 2. pillar are irrelevant*. Same if you want to go on holiday for three or more months. I would therefore say: it depends (no, I’m not a lawyer). Personally, I count the second pillar as part of my worth, simply because I include it in my asset allocation and I want to know how much I’ll have when I retire. But in the end it doesn’t matter, just do it the way you think is right for you and take this into account accordingly in your calculation and assumptions.

*If you want a yacht, you have to sell corona masks to the swiss government.

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16

I would even consider the 1st Pillar in my calculations. The amount and when you get it are predefined. For many it can make a difference in retirement → influences the risk you need to take with your investments.

I understand that policies can change but I would argue that the 1st pillar is not necessarily less secure/predictable than the markets.

For the 2nd Pillar, why not? Wouldn’t you consider a long term Fixed Term Deposit as part of your Net Worth? (there are not the same, but you get the point)

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17

I think you should factor pillar 2 into your calculations.

Now, you might want to add a bit of a buffer e.g. that retirement year might get pushed back, or discount it a little bit for increases in taxes. But overall, you should include it in your calculation.

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18

Advisors have their own interests in play. It makes sense for them to knock the second pillar. They can get commission on other products, 3a, 3b Life Insurance etc. . And I never believe the “independent” part either (but that could just be me:)

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19

The UBS Global Wealth Report considers Pillar 2 as part of financial wealth and includes it in net worth.

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20

And how would you do that, considering there’s no option to withdraw a lump-sum?

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