Yeah, it is just my personal situation that doesn’t generalize well. I have stock options and when I exercise I have to pay income taxes between the strike price and the market price.
But only if you haven’t filled the bond part of your portfolio or are close to retirement or if you can get the money out before that, no?
Got it. So you basically got a huge extra income.
I find an idea of buying real estate just to unlock 2nd pillar funds somewhat overcomplicated. Yes, if you want to buy RE, you are allowed to take pension savings, but you would have to wait 3 years. And who knows what will happen until then.
Doing pension plan buybacks just to save on taxes also doesn’t sound very appealing to me. Yes, you will save some taxes now in a year you have a higher income, but then you will have to pay a tax when you withdraw.
And then there is a question of your assets allocation. If you have a large part of your wealth as stocks and want to add safe part, sure, do buyback. But maybe it is better to invest these money in stocks, if you don’t have much?
Another question is how good is your pension plan. If you got a minimum of 1% in 2019 and 2021, don’t invest in this plan.
And I would also say don’t buy into an “early retirement plan” unless you understand very well what are withdrawal conditions.
All in all, if buyback into a “normal retirement” plan is like below 30% of your additional income from options, sure, go for it. Otherwise it needs more thinking.
I find an idea of buying real estate just to unlock 2nd pillar funds somewhat overcomplicated.
No question about that. We want to buy a home and that is the main reason why we are evaluating the stock sale.
Yes, if you want to buy RE, you are allowed to take pension savings, but you would have to wait 3 years. And who knows what will happen until then.
Sure, but if you can actually use the money at the start of the fourth year to change your mortgage terms like I am hoping and you are OK in principle with the stock sale you are probably reducing your taxes / making gains in the double digits. This one sounds alluring but I’ll have to double check a lot of details to make sure that it works - that is if it works.
And I would also say don’t buy into an “early retirement plan” unless you understand very well what are withdrawal conditions.
Yep, that should be reseached in much more detail than what I currently know. It’s pretty amazing how complex that system is - it’s like people deliberately designed it to be like that.
I think is a good idea when you need to increase home equity to reach 34%+, when mortgage rates are higher and for everyone who has special windfall years, bonus,…
If your asset allocation has already enough stocks, why not saving taxes in a safe investment at 1+%
then in 3 years you reduce the mortgage, if needed. is even more efficient for short period of time.
Risks are that you don’t want/need to reduce the mortgage anymore and the capital is blocked there.
Hi guys, I have a question about the 2nd Pillar purchase.
I can purchase 18k and reduced my taxes for the year.
If I decide in 2 year to buy an apartment in Switzerland, can I pledge the full amount of my 2nd pillar without any tax consequence?
I know that you need to wait 3 years if you want to withdraw but I am not sure about pledging.
Thank you for your help
yes
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Hello everyone !
is there really an overall interest in making deductible payments on your 2nd pillar?
The annuity that one receives upon retirement will be taxed on income, which “cancels” the benefits of the deduction?
(the only difference perhaps comes from the fact that our pension will perhaps be lower than our salary today, therefore the tax rate will be lower).
A very nice day everyone!!!
Yes, there is.
No, the annuity you’ll receive will be maybe 60-80% of your current salary, depending a lot on various parameters such as how much the employer contributes, how well the fund performs, how long someone has paid in (e.g. expat that came to Switzerland at 50), etc.
In addition, there’s also the option of withdrawing the capital, what most people on this forum plan to do instead of taking an annuity.
Attention. It’s yes (you can purchase and use it) but no (you won’t get tax benefit as there is locking period of 3 years)
I am assuming you are talking about voluntary or additional payments into 2nd pillar. I think comparing current salary and future annuity is not right comparison because you can always take money out as lump sum if annuity doesn’t make sense at time of retirement. And remember 100 CHF after 25 years is not the same as 100 CHF today due to inflation.
If you want to decide if 2nd pillar contribution will make sense versus simply investing money yourself (after tax) then best is to compare capital at time of retirement
I suggest to do some calculations and it would be clear what is the benefit / loss . Let’s say you have 10000 CHF which can either go into 2nd pillar or you can invest it yourself. Let’s assume tax saving is 30% and time to go until retirement is 25 years
Note - in most cases just because you want to contribute more doesn’t mean employer will also contribute more (like 401k match) but if that’s the case then this whole discussion becomes no brainer because it would be very difficult to beat this deal. For purpose of discussion below, I would assume that’s not the case
Case 1 -: invest yourself and pay tax
This means 3000 CHF goes into tax
7000 CHF invested for 25 years with expected return of X% AND you will pay wealth tax annually
Case 2 -: invest in 2nd pillar and save tax
This means 10000 CHF goes into 2nd pillar and
10000 CHF returns y% return over 25 years AND lump sum tax at time of withdrawl
So the decision comes down to following
Those are great points, it can be helpful to do a table or visualize it to get the idea.
But aren’t you double-counting the tax reduction in case 2?
Hi there.
While i was responding, I realized, you are right
My thinking was as follows
If I invest 10K in 2nd pillar, then I save 3K in my taxes for my total income. This means I have extra 3K which I would have never had if I didn’t put the money in 2nd pillar.The point is that investment in 2nd pillar is just shifting capital from my bank account to 2nd pillar. But this act itself creates extra money in the total balance (bank account + 2nd pillar)
But i added this 3K , twice , which was not correct. Right numbers should be following. I will edit the response above too
A ficticious example below
Assumption of Capital at end of 2023
Case 1 -: Income during 2024 = 150 K, Tax = 45K, expenses 80K
Capital at end of 2024 = 125 K (Taxable account), 100K (2nd pillar) , Total = 225 K
Case 2 -: Income during 2024 = 150 K, Tax = 42K, Extra 2nd pillar contribution = 10K, expenses 80K
Capital at end of 2024 = 118 K (Taxable account), 110K (2nd pillar) , Total = 228 K
The comparison should be
Case 1 -: 7 K invested in ETFs with 5-7%
Case 2 -: 10 K invested in 2nd Pillar with 2-3%
Hi all,
We’re deviating a bit, but I saw several of you mentioning purchases into the second pillar. I’m a bit puzzled; why would one do that when the returns are quite mediocre in comparison to stock market? Is it because of the tax advantage? Or/and a strategy that makes sense while getting close to retirement, hence moving funds toward less volatile type of assets?
I’m in my early 30s and far from FI, so maybe that would not apply to me yet. But still interesting
Thanks!
EDIT: Just read the other thread “Deductible payments on your 2nd pillar” which essentially answers my question
Returns are mediocre, but:
I guess the closer you are to retirement, the more interesting it becomes, right?
On a long term horizon, I imagine the tax benefits gets rapidly offset by the lower returns
That’s a good point. I would have done the math based on my actual tax rate and not the marginal tax rate, which makes a substantial difference.
Another point to have in mind and which is hard to quantify, are potential evolution on how the second pillar works driven by politics. Some might see it as a significant risk to see your funds locked, used up for something else, etc… Again, less of a risk on a short horizon
That’s the standard recommendation. It assumes that you work until the standard age and that’s when your salary and hence tax rate peak.
That depends, likely correct if you are 100% in stocks and got 30 years in front of you. Compared to bonds, returns in decent pension funds isn’t that bad, even before the tax reduction.
I guess mine need to step up its game with 1.25%… 
The average pension fund returns over last 20 years are around 3% but how much gets credited as interest depends on the liabilities of the fund.
However, some funds have different offers like guaranteed return of 3.5% or (BVG min + X). So it all comes down to what the fund offers. And also how much risk someone is willing to take in direct investments.
Expected return on global stocks (in CHF) is approx 4-5% on top of inflation.
I think the main point here is always about what are you doing with money in general. If you are ~90% invested, then it’s different vs if you are 90% cash
But lot of people say that returns on 2nd pillar are not great and stocks are better. But then they also don’t invest in stocks.
