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-   -   Pensions - how much are they really worth (https://www.englishforum.ch/finance-banking-taxation/13560-pensions-how-much-they-really-worth.html)

jbrady 13.10.2007 17:02

Pensions - how much are they really worth
 
Hello, I have been looking over my Pension statement and trying to work out how much I would get when I stop working.
There is an impressive number of about half a million on this statement, but after reading the actual payment per month I was a little shocked. 34K a year which equals about 3K a month. Possibly 1K for my wife if she keeps working for the next 20 years.
I presume that you get a state pension on top of this - say about 2K (each?).
This is not really a lot to live on after mortgage, Krankenkasse etc. Not really the golden retirement I was dreaming of. Is this the real world? Or am I missing something? What do normal people do?
I have a couple of questions.
First - do you pay tax on your pension (and do you still get tax breaks for the mortgage when you are over 65?)
Second:- Why do most swiss seem rich when they get older - they buy new cars, renovate their houses and just seem well - affluent.
Perhaps you have to save all your life, or wait for the older generation to die.
The whole point of this thread is that I have listened to so many people talking about their pension as if it was like winning the lotto, whereas in reality it seems to me that you end up with half your monthly salary with the same bills and commitments.
Does anyone have any real experience in this area? Has anyone retired here?

dannyt986 13.10.2007 18:12

Re: Pensions - how much are they really worth
 
Several thoughts and answers:
- yes the pension is taxed (for the first time since you saved it tax free)
- in theory your living costs should be lower by then (ie mortgage paid off, no kids, no travel to work and lunches etc)
- but then most people still underestimate how much it costs to have a comfortable lifestyle in retirement
- you dont say how old you are, dont forget the swiss statements just show the projected fund based on your current savings (not like uk ones that show total fund based on projected continued savings)

Daniel

jbrady 13.10.2007 22:14

Re: Pensions - how much are they really worth
 
I am 47 and the projections are based on retirement at 62.
The mortgage being paid off was the thing which put the fly in the ointment for me. Swiss style is not UK style. You basically seem to pay off the interest plus 1 percent amortorium (?), not like in England where you aim to pay the whole amount off before you retire.
I suppose with inflation and other factors - 1200 a month mortgage repayment will not seem the same in 15 years. Hopefully the salary goes up with inflation also.
I think that we all must think about the third pillar or some equivilant - with an extra 2k a month at todays rates, then I guess it could be an OK retirement. Without this, I think you need to start thinking about living in a cheaper country once you stop working. Many of my swiss friends seem to have taken this approach.

Jim2007 13.10.2007 22:59

Re: Pensions - how much are they really worth
 
One of the two biggest factors in determing you pension is time - the earlier you start the more it will be worth. Most Swiss people start contributing to the pension at 25, where as I guess you only started some time after your 40th birthday and this makes all the difference. The same also applies to the state pension - start late means a lower AHV pension as well :msnsad: Given you age and the area you work in (from your profile) I would expect that if you had started at 25, your pension by now would projected as about CHF6,000 plus per month, assuming that the company you work for has a reasonable pension fund.

Assuming that you started contributing late to the Swiss pension fund, then you still have the option of buying in the missing years - the pension statement should also indicate this. You should do this as early as possible because the earlier you do so the cheaper it is -- the time factor again. These additional contributions come of your gross salary, so you also get a tax break. Assuming an effective tax rate of 20%, as CHF20,000 contribution will actually cost you CHF16,000 and so on.

One other thing to check out is your disability pension situation. Is it enough? If not you may need to beef it up with some kind of insurance.

Best Regards,

Jim.

jbrady 14.10.2007 10:10

Re: Pensions - how much are they really worth
 
This all make much more sense now.
I think if I can find a way of saving the equivilant of about another 250,000 before I reach 62/65 then I believe I would have enough to live relatively normally when I retire. Presuming the job is still around until then
I suppose selling the house would be an option.
I am quite glad that I started looking at the actual numbers before it is too late. Up until now I had really just presumed that any swiss pension would be vastly superior to the one back home. The half a million number blinded me to the other realities in my pension statement.

You were correct - the disability payout is not so fantastic. Will talk with my insurance guy next week.

galinas 03.06.2008 12:45

Re: Pensions - how much are they really worth
 
Quote:

Originally Posted by Jim2007 (Post 115877)

Assuming that you started contributing late to the Swiss pension fund, then you still have the option of buying in the missing years - the pension statement should also indicate this. You should do this as early as possible because the earlier you do so the cheaper it is -- the time factor again. These additional contributions come of your gross salary, so you also get a tax break. Assuming an effective tax rate of 20%, as CHF20,000 contribution will actually cost you CHF16,000 and so on.

How can one buy missing years? Does this correlate/ overlap with the voluntary 2nd pillar contribution and opening a Freizugigkeitskonto? And if one is taxed at source, can the missing years purchase be claimed as a deduction from Quellensteuer when a Korrektur is filed?

I assume that when one leaves Switzerland for good, these "missing years" get returned, as the mandatory 2nd pillar does. Is that right?

Thanks in advance!

Lob 03.06.2008 12:53

Re: Pensions - how much are they really worth
 
contact your employer HR rep. You are allowed some contributions, to an extent, depending on the level of pension you have now.

Blonaybear 03.06.2008 13:35

Re: Pensions - how much are they really worth
 
As you come from the UK you can also make voluntary contributions so that you get a full state UK pension in addition to anything you get from the AVS. See this thread where, in the last post, you will find a link to the UK pension site.



private_banker 06.06.2008 09:23

Re: Pensions - how much are they really worth
 
Quote:

Originally Posted by jbrady (Post 115866)
I am 47 and the projections are based on retirement at 62.

Of course bear in mind that you will be contributing for another 15 years. And by the way, do you have any UK personal pension plans?

gbn 06.06.2008 09:35

Re: Pensions - how much are they really worth
 
Quote:

Originally Posted by private_banker (Post 241397)
Of course bear in mind that you will be contributing for another 15 years. And by the way, do you have any UK personal pension plans?

The projection includes future payments, and assume syou carry on working for that company until you are 62

private_banker 06.06.2008 09:44

Re: Pensions - how much are they really worth
 
Quote:

Originally Posted by gbn (Post 241407)
The projection includes future payments, and assume syou carry on working for that company until you are 62

But doesn't take into account any future pay increases or bonus contributions though.

jbrady 06.06.2008 11:05

Re: Pensions - how much are they really worth
 
Quote:

Originally Posted by private_banker (Post 241397)
Of course bear in mind that you will be contributing for another 15 years. And by the way, do you have any UK personal pension plans?

My problem was I did not think I would reach this age - I think the little pension I have in the UK, I will try and merge into my swiss pension.

I will possibly increase my mortgage repayments so that when I am 65 there is a small reserve in my house which I can draw on - in case I live too long.

Most swiss people I speak to seem to do the opposite of this - they increase their mortgage and improve their homes. It is tax beneficial, but does not give you any emergency funds.

private_banker 06.06.2008 11:49

Re: Pensions - how much are they really worth
 
I don't know whether your employer would allow this although it depends on whether you will move back to the UK - but worth checking whether you can transfer the pension to the UK (timing of conversion from CHF to GBP is key) and then buy an annuity in the UK - the guaranteed annuity rates are always higher with GBP.

Jim2007 06.06.2008 20:35

Re: Pensions - how much are they really worth
 
Quote:

Originally Posted by jbrady (Post 241502)
My problem was I did not think I would reach this age - I think the little pension I have in the UK, I will try and merge into my swiss pension.

I will possibly increase my mortgage repayments so that when I am 65 there is a small reserve in my house which I can draw on - in case I live too long.

Most swiss people I speak to seem to do the opposite of this - they increase their mortgage and improve their homes. It is tax beneficial, but does not give you any emergency funds.

If I was you I would:
  • Buy as much as you can into the pension fund - you'll save big on the taxes (5,000 in the pension cost you say 4,000)
  • Next the 3 pillar - again you'll save on the taxes
  • Next invest in an index fund - gains are tax free and with 15 years to go it should be fine.
As regards the mortgage do it the Swiss way... If you do it as you are currently suggesting, it does not work out, since once you sell the house you will need to pay rent - a new out going, so you are back to square one....

Jim

jbrady 06.06.2008 20:46

Re: Pensions - how much are they really worth
 
I agree with most of what you say - except, if I sold the house, I would probably move to the Philpipines. rent would be zero as my wife has a house there
I still think it is prudent to have a reserve. Not much point owning a home which belongs to the bank - it would be better just renting a nice place now rather than go throught the hassle of building up a perfect place to live.
This is my view anyway

Jim2007 07.06.2008 12:03

Re: Pensions - how much are they really worth
 
Quote:

Originally Posted by jbrady (Post 242028)
I agree with most of what you say - except, if I sold the house, I would probably move to the Philpipines. rent would be zero as my wife has a house there
I still think it is prudent to have a reserve. Not much point owning a home which belongs to the bank - it would be better just renting a nice place now rather than go throught the hassle of building up a perfect place to live.
This is my view anyway

Lets assume you have CHF5,000 to invest and your effective tax rate is 20%. If you put it in the pension fund, you'll save CHF1,000 in taxes, you now have another CHF1000 to invest, so the total is CHF6,000 - you are up 20% right away! If on the other hand you pay off part of the house loan, it is still just CHF5000. So now you have to hope that the CH5000 in the house is somehow going to out pace the pension's CHF6000 to at least break even - short of a bubble, that is a tall order.... Also remember that you have a more or less guaranteed min. return on the pension fund, which you do not have on the house - house prices can and do go down.

And the end of the day you can always cash out the pension fund and take it with you to where ever - easier than selling off the house.

Best Regards,

Jim

gbn 07.06.2008 13:58

Re: Pensions - how much are they really worth
 
Quote:

Originally Posted by private_banker (Post 241418)
But doesn't take into account any future pay increases or bonus contributions though.

Of course, but these will increase the final payout, no?

private_banker 09.06.2008 15:11

Re: Pensions - how much are they really worth
 
Quote:

Originally Posted by gbn (Post 242327)
Of course, but these will increase the final payout, no?

Absolutely! Isn't that my point?

Richard 10.06.2008 21:52

Re: Pensions - how much are they really worth
 
Quote:

Originally Posted by private_banker (Post 241573)
I don't know whether your employer would allow this although it depends on whether you will move back to the UK - but worth checking whether you can transfer the pension to the UK (timing of conversion from CHF to GBP is key) and then buy an annuity in the UK - the guaranteed annuity rates are always higher with GBP.

Current Swiss law prohibits the transfer of pensions out of Switzerland except to Liechtenstein. You can of course upon retirement choose to take capital instead of a monthly pension and transfer that but you will probably get stung on tax at the moment the money crosses the border...

Richard 10.06.2008 21:54

Re: Pensions - how much are they really worth
 
Quote:

Originally Posted by jbrady (Post 241502)
My problem was I did not think I would reach this age - I think the little pension I have in the UK, I will try and merge into my swiss pension.

I will possibly increase my mortgage repayments so that when I am 65 there is a small reserve in my house which I can draw on - in case I live too long.

Most swiss people I speak to seem to do the opposite of this - they increase their mortgage and improve their homes. It is tax beneficial, but does not give you any emergency funds.

In order to merge your pension fund in the UK into your Swiss fund your Swiss fund needs to be QROPS. Search this site for more info on QROPS pension funds in Switzerland.


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