Pension Fund Purchase in Switzerland

What is a Pension Fund Purchase? A voluntary contribution to the pension fund to close gaps in retirement savings and achieve tax savings.

How much tax can you save? The amount of tax savings depends on income, the contribution amount, and location. Below are some guidelines.

When does a Pension Fund Purchase make sense? Especially before retirement to benefit from the highest tax advantages.

Conditions for pension fund withdrawals: You can withdraw pension fund funds early when purchasing property, becoming self-employed, emigrating, or in cases of disability.

1e Pension Solutions: A leadership solution that maximizes short-term tax benefits and improves long-term returns on savings.

Alternatives to Pension Fund Purchase: For long-term investors, a globally diversified stock strategy may be a more exciting option than a pension fund contribution.

 

Key Questions and Answers About 2nd Pillar Purchase

How much tax do I save with a Pension Fund Purchase? Tax savings vary depending on taxable income, contribution amount, and location. Example: For a taxable income of CHF 140,000 and a contribution of CHF 40,000, substantial tax savings can be realized depending on location and marital status.

The marginal tax rate indicates the percentage of income that is tax-advantaged due to the contribution. The higher the tax rate, the more you can save.

• In Zurich: Married 28%, Single 30%
   
• In Basel: Both 30%
   
• In Zug: Married 17.5%, Single 21%
   
• In Wollerau: Both 16%
   
• In Lucerne: Married 27%, Single 26%
   
• In Frauenfeld: (TG): Both 31.5%
   
• In Aarau: Married 28%, Single 30%
   
• In St. Gallen: Both 31.5%
  
  
   

Pros and Cons of a 2nd Pillar Purchase

Pros:

• Tax optimization before retirement (most beneficial)
• Tax optimization when contributions are withdrawn
• Increased pension (lifetime security, even for partners)
• No tax on dividends, interest, or wealth tax
• 1e Solution (returns and tax savings)

Cons:

• Higher stock market returns (especially beneficial after 15 years)
• 3-year lock-in period for early withdrawal (tax savings must be repaid)
• Conversion rates are already low (above-obligatory)
• Contributions in the above-obligatory portion of the pension fund
• Lower returns
• Collective risks of underfunding / restructuring
• Responsibility is given up
   

When does a Pension Fund Purchase make sense? A Pension Fund Purchase is especially beneficial in the years leading up to retirement, as you can access the funds sooner. If you wish to withdraw your pension fund balance upon retirement, you should make contributions at least three years before retirement; otherwise, you will have to repay the tax savings.
 

Under what conditions can I withdraw my pension fund?

• Property: For purchasing or building a home, participating in housing cooperatives, or repaying mortgage loans.
• Self-Employment: If you become self-employed, with the main income coming from this activity.
• Emigration: If you leave Switzerland, you can withdraw the pension fund, but only the above-obligatory portion if you stay in the EU/EFTA, or the full amount if you move outside the EU/EFTA.
• Disability: If you are receiving a disability pension or the balance is minimal.

Important: Consult with a tax specialist before withdrawing pension funds upon emigration. High taxes can apply, and a strategy for withdrawal is highly recommended.
 

A voluntary Pension Fund Purchase is a way to enhance your retirement savings. Normally, retirement funds are built through annual credits paid by both the employer and employee. However, if you want to save more for retirement or have a contribution gap, you can make voluntary contributions to your pension fund. This is particularly relevant when you have taken a break from your career, such as during a study period, sabbatical without continued insurance, or extended maternity leave, during which no pension contributions were made.
 

The option for a 2nd Pillar Purchase exists when:

• You are insured with a pension fund.
• A contribution gap exists.
• Prior withdrawals for self-owned property have been fully repaid.
• No waiting period is required.

The potential for a Pension Fund Purchase increases with each salary increase, as the difference between the existing retirement savings and the target balance in the pension fund grows. This difference is shown as the contribution potential on the retirement certificate.
 

1e Executive Pension Solutions: Check whether your employer's pension fund allows you to join a 1e pension solution. With this extension to your existing pension fund, you can not only make contributions but also invest these tax-optimized contributions in various stock strategies.
 

Alternatives to Pension Fund Contributions For investors with many years until retirement, a diversified stock strategy might be a rewarding option. This strategy not only offers higher returns but also allows you to manage risk over a long time and benefit from market gains.
 

Alternative for Risk-Tolerant

For those with over 15 years to retirement, a stock strategy can be highly beneficial. Stocks typically offer higher long-term returns than a pension fund because you can keep the profits from your investments. Investing in stocks through a diversified portfolio allows you to control your returns while minimizing risk over a long duration. Although you forgo short-term tax savings, the long-term returns are higher. You can later use the profits from this strategy for your Pension Fund Purchases.

A downside to this strategy is that dividends, interest income, and capital gains are taxable, which is not the case with Pension Fund Purchases. However, this remains an attractive option for investors seeking higher returns and willing to take on some risk.
 

Conclusion

A Pension Fund Purchase in Switzerland offers numerous benefits, both in terms of retirement savings and tax savings. Especially in the years before retirement, this measure can help maximize pension claims and significantly reduce the tax burden. However, it is important to understand the conditions and withdrawal options to fully take advantage of the benefits of a Pension Fund Purchase.

For risk-tolerant investors, alternatives like investing in stocks may offer higher long-term returns. A personal consultation with a financial advisor can help develop the best strategy and determine whether a Pension Fund Purchase or another investment strategy is more suitable.