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5 tips for making voluntary contributions to a pension fund in Switzerland

Pubblicato il 18.09.2023

Voluntary contributions to the pension fund are regarded as an attractive way to increase pension capital while saving taxes. However, there are also constraints and risks involved that you should clarify in advance.

Over the course of your career, you gradually save more and more into your pension fund. This increases your pension provision and is key to ensuring that you will have sufficient financial means for maintaining your standard of living when you retire. Both employers and employees make monthly savings contributions to increase pension assets. The capital market is seen as a third contributor; after all, it is the capital market that assesses your retirement savings and gives you a higher or lower return on them.

A voluntary contribution to the pension fund means raising the level of second-pillar finance with additional amounts that go beyond the mandatory contributions and allow you to close so-called gaps in contributions.

A gap in contributions can occur, for example, following a salary raise: the new, higher salary is not fully reflected in the pension fund because the lower income from the previous years is the main contributory factor. Luckily, this contribution gap can be made up, as long as your personal financial situation enables you to do so. These “voluntary contributions” are also exempt from income tax, meaning they are an efficient method of improving your pension benefits in a tax-optimized way.

But how much sense do voluntary contributions make, when all factors, ranging from taxes to yields and through to pension fund benefits, are taken into consideration? Specific cantonal regulations are also an important factor in this context.

 

Should I voluntarily contribute to my pension fund?

This five-point check will help you to decide whether contributing to your pension fund makes sense:

 

1. Impacts on pension fund benefits 

Does the paid-in amount have a positive impact on your pension fund benefits? The important thing here is that your savings objectives and risk considerations should not be undermined by the existing benefits solution.

What happens to the voluntary pension fund contributions if you die or need to claim insurance benefits as a result of, for example, invalidity? Does your pension fund take the additional amounts into consideration or does it exclusively pay benefits on the basis of the insured salary? 

 

2. Protection against remedial action

How is your level of pension fund coverage? If it is well below 100 percent, remedial action may be necessary in the future. The costs of this are paid mainly by insured persons who are in employment—for them, either the conversion rate, for example, or interest, or both, can be reduced.

 

3. Returns after tax

Voluntary contributions to the pension fund can represent a profitable investment. First and foremost are the tax benefits, but these differ significantly from canton to canton. In order to account for cantonal regulation, it is, for example, worth setting up an individual contribution plan in order to stagger contributions (see tip 5).

Either way, it is important to calculate after-tax investment returns beforehand, together with an expert, so that you can figure out the optimization potential in each case.

 

4. Statutory waiting period for withdrawal of capital

Anyone who makes voluntary contributions to the second pillar only gets unlimited access to the pension fund capital after three years, at the earliest. Otherwise, taxes which were saved would have to be repaid. This becomes relevant, for example, if you want to use pension fund capital for buying a house. There are exceptions to this rule (e.g. after divorce) and adherence to this three-year limit has to be reviewed individually.

 

5. Staggered pension fund contributions

This is particularly important for anyone with greater financial scope: It does not always make sense to contribute the maximum amount all at once. Depending on your canton (and age), it may make more sense to contribute in stages, so you can further optimize the tax benefits. In this case, an individual contribution plan is a tried-and-tested aid. In years where your income is particularly high, you may choose to deviate from your set plan and revise your plans for the years ahead.

When is caution required when voluntarily contributing?

Buying a house, moving house, going through a divorce: Certain decisions in life also open a new chapter in our old-age provisions. In order for contributions to the pension fund not to end up conflicting with other objectives, advance planning is recommended in the following four situations:

Did you know?

What is my maximum potential for voluntary contributions?

The information included on your pension fund’s insurance certificate is not always binding. That is particularly the case if you have retirement assets saved elsewhere: e.g., vested benefits foundations, basic provisions or in pillar three. We can support you in optimizing your overall situation.

 

Tax savings 2023—Swiss cities compared

The example below shows how much you can save in taxes if you voluntarily contribute to the second pillar with CHF 50,000.

 

2023 Zurich Bern Basel St. Gallen Lausanne
Emploment income     200,000    
Contribution to second pillar    

50,000
by 12/31/2023

   
Taxable income     150,000    
Tax without pension fund contribution 42,989 55,670 57,041 48,838 47,912
Tax saving with pension fund contribution 17,222 19,976 17,810 18,486 18,048
Tax with pension fund contribution 25,767 35,694 39,231 30,352 29,864

 

Amounts in CHF. Calculation basis for pension fund purchase: married couple with two children, Catholic. Wealth not factored in. For each city, the calculated tax and tax saving include all types of tax (Federal, canton and municipal taxes).

Conclusion: Invest in your financial future

Making voluntary contributions to your pension fund is an effective strategy for strengthening your pension provision while benefiting from tax advantages. However, it is important to plan this process carefully and to integrate it into your overarching retirement strategy. Advice from experts can play a vital role in ensuring that you reach your financial goals in retirement.

You should think of your retirement finances as a long-term process that requires commitment and planning. By taking the right approach, you can lay the foundations for a secure and comfortable retirement.

Do you have specific questions on this theme?

Needs and financial objectives change depending on your life phase. With detailed financial planning from our experienced experts, you will be well prepared. Get in touch with us without any obligation or start the next chapter of your wealth right now with an interactive Wealth Check.

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