I left my job last month and realised too late that I can no longer make a tax free voluntary pillar 2 contribution to my old fund and claim a tax deduction. I moved to Switzerland at 34 and have many missing years I could fill.
My goal was to contribute a substantial amount this year and reduce my tax burden, and withdraw to a vested benefits account to invest my saving that way. Are there still options available to do this?
Obviously I was planning on a sabbatical right now, but I’m open to going back to work this year if it is worthwhile.
Won’t work if you’re not subject to AVS (e.g. on unemployement), but maybe the optional insurance from Home - Stiftung Auffangeinrichtung BVG allows to do buy-in?
(you’d need to sign up shortly after losing your job tho)
(and then you can transfer it to a vested benefits accounts, but do your own checks )
You’ve officially quit and can’t contribute? If so, then maybe get another job. Otherwise make the contribution next year or whenever you’re employed again.
You can sign up for a voluntary pension plan with the LOB if you receive unemployment benefits, as they are subject to OASI (AHV) contributions. But if you want to, you should do it right away, as there is a deadline.
The Substitute Occupational Benefit Institution LOB (Stiftung Auffangeinrichtung BVG) lets you make voluntary contributions to close gaps, like other pension funds. You can find the details here:
Is this a 2nd pillar for FIRE people? It seems you can open an account after the unemployment benefit are finished. Can you send all your 2nd pillar there and thus getting a pension instead of a lump sum? Seems nice, especially if they keep the rate at 6%
Thanks folks, yes I was looking at this option, but don’t understand the process. I have applied for unemployment but the ALK Arbeitslosenkasse has not yet processed my docs yet (waiting for the Arbeitsbescheinigung, which is pending the payroll finalisation as there is a severance payment).
Yes, I contributed to 3a already. Expected income this year is quite high with the severance, taxes are high enough to motivate me to avoid them
So I have questions:
What is the deadline you mention?
If I understand the above, wait until the ALK processes me and starts payments, then I can apply for voluntary plan with the LOB. Then I make my contribution. correct?
When can I withdraw from the LOB to vested benefits account? Immediately, or after unemployment payments cease (or when I quit my next job)
what to do with my current Pillar 2 payout? Transfer it to vested benefits accounts now, or to the LOB?
deadline is 3 months after prior plan ended, for continuation of insured salary
you can contribute up to a max balance which is a % of insured salary tiered based on age
this is substantially less than the buy-backs I would have been allowed under my Pillar 2 while employed.
Can be seeded from Pillar 2 or vested benefits accounts, as well as voluntary contributions, so like normal I guess?
Seems they require regular contributions to stay in the scheme, increasing according to age, which can be 15% of insured salary after age 45. Voluntary but requires quite some commitment
The contributions are the same as for compulsory occupational pension fund contributions, which do increase with age. The only difference is that your employer does not pay half.
I agree that it is quite a commitment. It may also be worth considering the potential opportunity cost of having that money in a pension fund earning interest as opposed to investing it. Remember, once it’s in the pillar 2, it stays there unless you meet the criteria for a withdrawal. Of course depending on our tax situation, the tax savings could well be worth it. Additionally, it could be a way to complete the fixed-income portion of your portfolio.
You could do a strategy of buy-in + contribution to increase your pot, and then move to a vested benefits accounts (with a lot more investment freedom but no option to get an annuity)
I called the BVG and confirmed I can open a WO20 plan, make an arbitrary voluntary contribution and then withdraw it all to a vested benefits with a month’s notice. The maximum balance not relevant - once it is exceeded, it spills into an additional account not used for the eventual pension but can still be withdrawn and still counts as a Pillar 2 contribution.
Indeed. The pension from the BVG plan is anyway not so attractive.
Why do you actually want to do a 2nd pillar contribution? Just the tax savings is not a good reason. In your new job, you‘ll probably be in a bad fund again with 1% interest.
You are also still young and it can compound more outside, then what you save in taxes.
That would make sense if the OP does not expect to work in Switzerland again, at least for a long time. If he expects to be employed in Switzerland again in a year or so, then there’s no point investing for that short time-frame (too much risk). Best to leave the money in the LOB with a basic interest rate. In that case, the tax savings are the return.
I agree that you should think this through. While the tax savings can be substantial, over the (very) long term, the opportunity cost compared to investing can negate the tax savings.
In my opinion, you should consider a Swiss pension fund to be part of your portfolio’s fixed-income component. So if, for example, you follow a 60/40 strategy (not very mustachian, I know), then your pension fund benefits should not make up more than 40 percent of your total portfolio.
I’m still exploring paths forward, agree going back to employment and transferring into a new restrictive Pillar 2 blunts the advantage here. Most likely rain I don’t follow through with it. The option where I see this winning is using a VB account to invest, which means not doing that! Instead leaving the country, self-employment, early retirement, or the questionable approach in (Temporary) vested benefits account strategy.
With the additional contribution my Pillar 2 would still be less than 30% of my portfolio. VB would be a great place to invest in fixed income and also diversify into dividend shares (which depends on the VB provider having an Income Stocks Fund on the menu). In that case the tax benefit would be substantial ongoing.
If you’ll be keeping the money as vested benefits or withdrawing it from the pillar 2 (i.e. by moving outside EFTA/EU), then obviously you can hold/invest the money as you choose. The fixed-income ratio is relevant for benefits in Swiss pension funds (i.e. you are employed in Switzerland).
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