Very good point
I ran the numbers with to a random case study and the result is quite robust with regards to input parameters. I played around with various parameters but the crossover-point did not move significantly.
Executive summary: I arrive at the same conclusion as this thread. Good short term investment (but watch out for the 3 years withdrawal limitation!) but a very bad long term investment with many unknowns.
Many thanks for all the contributions above! Rereading this thread I realise that I basically just repeated the thought process already laid out in this thread
Best, Mr. Lean Life
I agree with your analysis. However, there is one more thing we can take into account: asset allocation.
If you already have a very large investment, it may be interesting to add more to your second pillar as if it was bonds. The second pillar is very similar to a bond in that it’s quite safe. It may be interesting in having some safe money from a long-term view. Personally, my portfolio has probably too much bonds already since my investment account is too small. But if this changes, I may invest a bit into my second pillar.
I know that @MrRIP did several voluntary purchase. Maybe he’ll have an interesting opinion on that.
My 2nd pillar plans while young (23 currently):
- Contribute the minimum my employer requires me to
- See it as a “low-risk” investment in my overall portfolio, thus go higher allocation on equities with liquid capital (currently 100% other than cash flow in bank accounts)
- Either pledge it if buying a house in 5-15 years (so I don’t need to forfeit as much high returning liquid capital), withdraw it if leaving Switzerland to more a favourable investment/overseas pension plan, or use it to fund a company I may wish to start
- When I am closer to retirement (55-65) back-purchase as much as possible to pay no income tax for my final working years
I don’t think there is much reason to do back-purchases when so young, plenty of time for that closer to retirement when it is more to your advantage.
Would it make sense to buy 2nd pillar with money from 3a when you are in your 60’s ?
I do the same As my 2nd pillar is a rather large percentage of my overall portfolio at the moment I can keep ignoring the 2nd pillar for a while.
Mhmmmm. I would actually doubt that this always would make sense. I have not vetted that thoroughly but I think the process would be:
- Take out 3rd pillar money
- Pay “Kapitalauszahlungssteuer” on that amount
- Contribute to 2nd pillar
- Reduce your taxable income and save with the marginal tax rate
- Wait > 3 years
- Take out 2nd pillar money
- Pay “Kapitalauszahlungssteuer” on that amount (again!)
This would mean that you pay the “Kapitalauszahlungssteuer” twice on the same amount! That being said and thinking about it a bit longer I think it could actually work if you live in the Canton of Schwyz or the Canton of Appenzell Innerrhoden. So you would probably have to run the numbers yourself depending on your fortune and your municipality of residence at the point of the events listed above. However, the key equation stays the same:
2 * "Kapitalauszahlungssteuer" < Savings from Marginal Tax Rate
If this holds true I would not see a reason to not do it (except the tax authorities having something to say about that).