Hi guys. You all here write about pillar 3a, but what about pillar 2? The second pillar allows you to pay in much more than the 3. pillar and if it is done directly by the employer then you don’t pay social contributions on that income. Any experience with that?
the point why nobody here cares a lot is because you have no control over it, apart from some employers (ETH…) allow you to voluntarily add 1 or 2 per cent on top of the mandatory contribution. further, the pension funds are highly regulated such that they are “happy” to achive 1.5% return in current low-interest markest (ever heard of stocks? noooo, too risky)
every penny i could avoid to put there i would, and put it into my IB/ vanguard account
I thought about it lately as well. I agree with most of what you said which is : investment returns from the second pillar are really crap. So for a long term investment, it is not really worth it.
On the other hand, there is one case where second pillar might be interesting :
Any money you put in the second pillar, your employer has to match it at least 100%. So you double your money! Of course it is only a one shot, linear, not compounded return, so the advantage is only short term.
I know that a lot of people here plan to stay in Switzerland, so these short term gains are not interesting for them.
However, there are also people planning to reach FIRE in around 10 years, and then leave Switzerland…
If they manage to cash out their second pillar (depending on the target country), they would get a 100% gain in 10 years, which is quite good!
To reach the same with your third pillar you would need to have around 7% annually…
In my company the 2nd pillar investments is ultra-conservative because it’s standardised for all employees’ age (those who are in 20’s-30’s and those are in 50’s-60’s). We’re currently negotiating changing that to have two tracks: young-agressive and old-conservative. As far as I know, it basically consists of two elements: (1) obligatory part that has to be the same for employees and it negotiated between the employees representative and employer, (2) supplementary part that is up to employer and that is more flexible and can be customized per employee or group of employees. However, to have that flexibility of the second part, the employer has to choose that model at their 2nd pillar fund broker/operator.
i am not so sure about that, and according to my pension statements i doubt it. when i stopped the 2% extra, my employer’s contribution did not change. it was “überobligatorium” money.
Well I have a special situation in that case. I am practically a freelancer. I bill every day that I worked, and the guy that owns the company just pays the taxes and takes a small commission on my earnings. He also uses a pension fund for the company and I am free to decide how much of my earnings I want to send to the 2. pillar. If I do send it, it will somehow not be treated as my income, so I will save social contributions and taxes. The savings can be huge, maybe over 40%.
The pension plan that he is using has 50% stock allocation. The 10-year return has been around 2.8%, and that’s counting from the peak of the previous bull. When I checked IUSA total return in CHF at justetf.com, I got 4.6%. Even if this fund has 2% worse performance than S&P 500, it’s still not bad.
In my case, if I’m correct, it would be that only my employer puts the money into second pillar and I put nothing. This way there would be no AHV, etc. paid.
What do you guys think? Does it make sense to use this 2. pillar? The instant tax boost looks really nice, and when I reach FI (which should be within the next 10 years), I can just leave Switzerland and get all this paid out, with a small tax. Or if I really decide to stay then I can use the 2. pillar to buy a flat.
I moved the discussion in this topic for more visibility.
I guess it depends on each contract then. In my case it is easy to find out because I arrived in Switzerland in January 2016 and got one statement in december 2016.
I can see on my payslips that I pay around 184 CHF per month for second pillar. That makes 2200 CHF per year.
However , on my annual statement for 2016, my second pillar was worth 7700 CHF, so my employer contributed big times! That makes a short term gain of +250%, which over 10 years is roughly equal to 13% annually.
would have to check which part is matching and which part is super-mandatory though. Another thing is that i am not sure that if I contribute more, the employer will contribute in a proportional manner.
@Bojack As usual, it is depending on two many parameters to give you a clear answer. My advice would be to run an excel sheet simulation over ten years comparing three scenarios : not contributing, contributing in an average manner, contributing a lot, and see how many taxes you would save. Then compare it to the money you would gain if it was invested elsewhere.
2nd and 3rd pillars allow some nice life-hacks.
2nd pillar allows you to get employer contribution and - in case you have a contribution gap - to put in more in order to break progression and lower your tax bills. If now - during the course of your life - you relocate outside of Switzerland (…other reasons also apply to take out the $$$ e.g. for purchasing real-estate or founding your own company), you may take the whole pot out and clear your 2nd (and also 3rd) pillar accounts pre-maturely. This can be done WITHOUT paying taxes at all (or reducing the tax burden to a minimum of the taxation in canton of Schwyz, see PFS). Assume now, you ever come back from abroad and have no 2nd pillar - your contribution gap will be super huge (= everything missing). Which means you can start the whole game again from scratch.
Another way to access the assets in these holdings is pledging them and borrowing against them, e.g. for the purchase of a house. Imagine “unlocking” the potential of your assets without actually having to take them out - for the price of merely 1% these days (conditions apply and interest rates can change of course). However, as your 2nd pillar value won’t swing around as much as traditional equity portfolio holdings, you won’t have the issue of a margin-call or other unpleasant surprises. And hey: it’s all about mental accounting anyways, you don’t actually have to use the money for the house, you can later increase a mortgage and reinvest your $$$ from a 2nd pillar pledge in whatever you like and reap the profits today!
Be careful with leverage, pledging and borrowing - make sure you understand the implications fully before taking action.
Or, alternatively, you may end up paying lots and lots of taxes if your new country of residence just taxes away the whole thing as income. And then you lose in more ways than one: potentially higher taxes than swiss, potential double taxation, miserable returns while the money was misinvested in pillar 2 scheme and high fees that pillar 2 institutions charge
Yes, choose your new domicile wisely!
Apologies, could only find it in German and not sure how up-to-date it is: http://www.comunitas.ch/files/artikel_bz.pdf
Use a domicile which doesn’t tax capital payouts AND ensure the double-taxation treaty is in place.
Then you end up paying 0%.
Interesting topic, just in time…
In the last 2 weeks I’ve been researching about how to get that cash out to put it to work… So…
I found out you could get that money into your pocket once you’re an independent employee.
That means you can get your 2nd pillar to start a business and not only to buy a house.
I dug deeper into the topic 'cause it sounds interesting to think you can get that stash and put it into an index ETF instead.
In order to get the money from the pension company, you need to show them the “independent worker status” which is released by the AVS office.
If you do that, the pension company will release the money within 1 week.
Now… the question is… how do you get that “independent worker status” right?
so… I went to the AVS office and told them I want that letter.
They explained to me I need to:
- fill-up a form
- Show the resignation letter (from my current job)
- show at least 3 invoices made to “customers”
- to make the case stronger you can show contracts with suppliers
So I asked… what if…
I resign from my current job, then,
show you all that you asked me to…
you give me the letter,
I show the letter to the pension company and…
I receive the cash within 1 week from showing it. and just after that, I do decide to go back to work for that company or another…
The girl kept thinking… she said… it’s possible, Law does not stipulate anything against that.
Has anyone thought about this “alternative”?
Since you posted i started thinking. I would clearly want to cash out my 3rd pillar and move it to my IB account. having my work contract ending in June 2018, i see some opportunity here
Good to hear that.
I’ll have to wait 'till the next year to do the move.
Are you able to show the documents they ask for?
And then you start working again as an employee, with an huge contribution gap in your 2nd pillar account… Guess what, contributions to this gap will reduce your tax burden.
Looks like we have found the cheat code! Anyway, I would make sure to get a confirmation by a lawyer or better by the AHV/AVS office… The benefit might be huge but transgressing the law often results in a negative return!
Let us know the outcome of your research.
Has anyone some site where you can compare how much taxes you pay depending on your income? I’d like to see how much less I’d pay if I contribute 500,1000 or 2000chf on my 2 pillar. I have a big gap and don’t know why.
How they calculate the gaps btw?
a non-exact description of how the gap is calculated is:
calculate your pillar 2 stash assuming you had contributed you current contributions from the beginning. the difference to your actual stash is the gap that you are allowed to deduct from taxes, if you decide to fill it
Ok that make sense. Now I need to know how to calculate if I contribute 1, 10 ,100 or 1000 chf per year.
I might do it for this year since I"m not fully invested.
you get the “pensionskassenauszuh” every January for the year before. you should find most relevant information there, and a call with the pension fund can probably answer all the questions you have