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:
The pension fund is a popular linchpin for financing the dream of one’s own home. But many are unaware of the fact that an advance withdrawal of pension funds must be fully repaid before voluntary contributions to the second pillar can once again be deducted from taxable income.
Generally speaking, pledges are not affected by this restriction.
Did you know: As soon as you repay the advance withdrawal for buying real estate, the capital withdrawal tax that you must pay upon your withdrawal is repaid to you, upon request. However, be sure to take account of the legal deadlines which must be observed.
Have you moved here from abroad and have never been associated with a Swiss pension fund? In that case, your annual voluntary contribution in to the first five years may not exceed 20 percent of your insured salary.
Divorces often lead to partners having to split their pension fund assets or pay one another off. That also impacts subsequent contributions to the pension fund.
Before normal voluntary contributions can be made, any (divorce) gaps must first be “filled.”
One interesting difference from normal pension fund contributions is the statutory waiting period: Normally, you must wait three years after a voluntary contribution before you may withdraw your pension benefits as capital. Otherwise, you lose the tax benefits retroactively.
Buying into divorce gaps is excluded from this waiting period.
Anyone who voluntarily contributes to the pension fund benefits from tax privileges and may, under certain circumstances, stop the progressive tax increases. That also applies to contributions that finance your early retirement.
Have you already exhausted your potential of voluntary contributions for normal retirement at 64 or 65? Further contributions are still possible if you are preparing for early retirement via your buy-ins.
Important: Retirement must then occur at the planned age, otherwise you risk a reduction in benefits. Get in touch with your pension fund or your financial consultant to clarify the details.
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.
|Contribution to second pillar
|Tax without pension fund contribution
|Tax saving with pension fund contribution
|Tax with pension fund contribution
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?