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Old 26.11.2007, 18:18
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3rd Pillar Pension Fund

Okay, you might think this does not belong here but it does!

I just want to remind all those who might never have heard of this that if you have not yet done so, you need to register for a 3rd pillar pension fund now if you want contributions for year 2007 to be tax deductable.

I will also stick my neck right out and say that at the moment the best policy is with Winterthur... They are the only company out there at the moment giving a guaranteed return and if you are thinking of staying for a while that gives added security.

And if I put this in finance, banking and the like half of you won't read it hence the reminder here in daily life...

If you have not got a clue what I am talking about it might be a good idea to say so...
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Old 26.11.2007, 18:29
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Re: 3rd Pillar Pension Fund

Thanks Richard for this useful post!

I was only thinking of setting one of these funds up this week. Would you be good enough to explain some brief details about this pension, like is there a minimum/maximum you can contribute? Also how is this effected if you leave Switzerland? (not planning to at present but you never know!)

Many thanks and yes you are quite right I only read it because it was in 'Daily Life'

Regards Catherine
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Old 26.11.2007, 18:45
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Re: 3rd Pillar Pension Fund

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Thanks Richard for this useful post!

I was only thinking of setting one of these funds up this week. Would you be good enough to explain some brief details about this pension, like is there a minimum/maximum you can contribute? Also how is this effected if you leave Switzerland? (not planning to at present but you never know!)

Many thanks and yes you are quite right I only read it because it was in 'Daily Life'

Regards Catherine
Yes there is a maximum and it is 6365 for year 2007. Minimum isn't given but most say 1K. If you leave Switzerland you can cash it in as you can periodically when there is "enough" in the pot. This is more tax efficient than leaving it long term till the pot is 200K or so. You don't pay tax on the contributions nor on the interest but you do on the withdrawals.
3rd pillar is more or less the Swiss equivalent to AVCs Additional Voluntary Contributions. It sits in a totally private pot (or pots you can change each year if you want) and the annual max contribution is published for the year - usually increasing annually.
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Old 26.11.2007, 23:34
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Re: 3rd Pillar Pension Fund

Hi Richard

Thanks for these posts. I'm not very financially savy so could I ask you for some basic info on these.

Besides the benefit of the long term pension benefit, could you please help me to understand how these policies help with taxes.

If we invest the CHF 6365, is the benefit that our fortune is reduced by this amount and therefore we are not taxed on it or is there an additional benefit that I do not understand?

Sorry if my question is very basic but as I mentioned, I'm definitely not financially savy

Thanks
Nats
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Old 26.11.2007, 23:56
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Re: 3rd Pillar Pension Fund

Hi Richard, thanks for the reminder.
does this have to be paid by the end of November? or 31 December?
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Old 27.11.2007, 00:25
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Re: 3rd Pillar Pension Fund

It's not your 'fortune' that's reduced by this amount, but your income. If you fill a tax return (foreigners earning >120,000 or home owners or C-permits) you can deduct the amount you pay into 3rd pillar from your taxable salary before you calculate your tax. For those not in such a position, I'm not sure if you can 'claim back' against tax.

Deadline will depend a little on whose 3rd pillar product you buy, but typically sometime around mid-Dec, to allow them to process etc.

Also for those paying additional into BVG (2nd pillar), the November deadline sometimes mentioned is also flexible according to your pension co. (mine says Dec 20th).
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Old 27.11.2007, 03:17
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Re: 3rd Pillar Pension Fund

Hi Richard,

thanks for the reminder.

I am wondering whether it makes sense for me to pay the 3rd pillar this year, when I know I am about to leave next year?

To which rate it will be taxed when/if I cash out next year? Normal income rate or something else?

Cheers,
Pekka
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Old 27.11.2007, 07:20
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Re: 3rd Pillar Pension Fund

Very worth while conversation. Thanks for your contributions Richard!

This just came up in conversation between my wife and I yesterday in fact. She is not the best at explaining financial details, so I will be checking in to get the scoop. We just got married and are in the process of establishing our mutual finances, so this is very interesting to me.

Is the 3rd Pillar essentially the same thing as a 401k or Roth IRA?

I'm a little confused (after my swiss wife's explanation) in regards to Swiss retirement funds. She seemed to think that the Confederation would come after your 3rd Pillar if it is needed to fund some kind of assisted living situation that you incur later in life. Do you know this to be true?

Could the 3rd Pillar be some kind of amalgamate of IRA/401K/Social Security funds the way they are set up in the US?

Cheers,
Matt
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Old 27.11.2007, 09:39
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Re: 3rd Pillar Pension Fund

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Hi Richard,

thanks for the reminder.

I am wondering whether it makes sense for me to pay the 3rd pillar this year, when I know I am about to leave next year?

To which rate it will be taxed when/if I cash out next year? Normal income rate or something else?

Cheers,
Pekka
Well to be honest it depends how much you earn now. And to be further honest you probably won't benefit at all if you are leaving in a few months. If you are a BIG earner you might pay 30% in tax. so you would lose 2K from your 6365. If you pay it into a fund it is taxed at a marginal 40% rate which on 6365 would be close to zero!
But whether there are set up fees for the fund etc is really down to where you go. If you went to a kantonal bank and used it as a simple saving fund it would effectively be tax free income. If you went with an insurance company you might find you lose half in set up fees... Note you will also pay tax next year and can make an additional contribution for next year so you are not really talking about 6365 but at least double that...
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Old 27.11.2007, 09:48
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Re: 3rd Pillar Pension Fund

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Very worth while conversation. Thanks for your contributions Richard!

This just came up in conversation between my wife and I yesterday in fact. She is not the best at explaining financial details, so I will be checking in to get the scoop. We just got married and are in the process of establishing our mutual finances, so this is very interesting to me.

Is the 3rd Pillar essentially the same thing as a 401k or Roth IRA?

I'm a little confused (after my swiss wife's explanation) in regards to Swiss retirement funds. She seemed to think that the Confederation would come after your 3rd Pillar if it is needed to fund some kind of assisted living situation that you incur later in life. Do you know this to be true?

Could the 3rd Pillar be some kind of amalgamate of IRA/401K/Social Security funds the way they are set up in the US?

Cheers,
Matt
Actually it is closest to the Roth IRA and nothing to do with a 401K. A Roth IRA allows tax free investment on taxed income. A 3rd pillar account allows tax free investment and is deductable against tax. However, unlike the Roth IRA the taxmen gets you when it is paid out. Its advantage is the way it is taxed. The Swiss allow you to use a 40% marginal rate. How does this work? Lets say you earn 100K per year and have a tax rate of 15%. The 15% means 15K in tax. If you have a pension fund captial payout ie cash it in they take 40% of the value and see what your rate would be on that. 40K income might attract 6% so your 100K cashed in pension be it 2nd or 3rd pillar would then be taxed at 6% ie 6K giving you a saving of 9K in taxes. Also note interest and dividends earned through a pension are free of tax until it is cashed in.

Jaudi answered the other questions most competently.
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Old 27.11.2007, 09:52
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Re: 3rd Pillar Pension Fund

Credit Suisse also has a guaranteed return product for the 3a account. Guaranteed return of 7.5% plus additional upside potential based on performance of the SMI. Check out the attachment for more info, sorry it is only in Deutsch for the moment.

Cheers,
Shiny
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Old 27.11.2007, 10:21
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Re: 3rd Pillar Pension Fund

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If you went to a kantonal bank and used it as a simple saving fund it would effectively be tax free income. Note you will also pay tax next year and can make an additional contribution for next year so you are not really talking about 6365 but at least double that...
^

Thanks,

I've got the "0%-return Inflation eater" Kantonal Bank account for my third pillar, so it should be fairly easy to get out from their side.

So are you really saying that, when I cash out my 3 year 3rd Pillars next year, they are not taxed at all? That seems like a too good scenario. That would mean that it would make sense to pay it next year as well.

Cheers,
Pekka

P.S. I bet you have free flow in the EF pubnights, since your advice is worth gold!
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Old 27.11.2007, 11:46
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Re: 3rd Pillar Pension Fund

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Credit Suisse also has a guaranteed return product for the 3a account. Guaranteed return of 7.5% plus additional upside potential based on performance of the SMI. Check out the attachment for more info, sorry it is only in Deutsch for the moment.

Cheers,
Shiny
Thanks for that it seems like my info is out of date...
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Old 27.11.2007, 11:51
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Re: 3rd Pillar Pension Fund

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^

Thanks,

I've got the "0%-return Inflation eater" Kantonal Bank account for my third pillar, so it should be fairly easy to get out from their side.

So are you really saying that, when I cash out my 3 year 3rd Pillars next year, they are not taxed at all? That seems like a too good scenario. That would mean that it would make sense to pay it next year as well.

Cheers,
Pekka

P.S. I bet you have free flow in the EF pubnights, since your advice is worth gold!
Yes free flow in the EF pubnights now that would be nice but unfortunately...

Anyway, no I am not quite saying that. If you have 3 years paid in and next year pay a 4th you reasonably have CHF 25K. When you cash that in you will be taxed at earnings of 10K ie 1% which means your tax bill will be CHF 250... Merry Christmas I say...
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Old 27.11.2007, 12:00
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Re: 3rd Pillar Pension Fund

I forgot to make my pay in last year. damn that hurt

but this year I'm going to compensate doubly for it. In Baselland in addition to the 3rd Pillar there's the Wohnsparen that allows you to pay in around 12000.-- tax deductible into a "Wohnsparplan" so I'll end up with almost 19000.-- less taxable income

there's a popular initiative running to allow all cantons to do that but I guess that will still take some years (even if it is approved by the sovereign).
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Old 27.11.2007, 12:08
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Re: 3rd Pillar Pension Fund CLARIFICATIONS

A few clarifications :-)

1) You can have a 3rd pillar account with either a Bank or an insurance company. In a bank it works pretty much like a standard account but with higher interest rates. You can have different types according yo your risk profile. Coop and Migros Bank were the best ones for just a basic account last time I checked. You do not need to have other accounts with them.

2) You can deduct the amount you put into your 3rd pillar from your taxable income whether you are a tax declarer or a tax at source person. Just the way to do it is different: a tax declarer willinclude this in his/her declaration whilst a tax at source needs to fill in the approriate form.
http://www.steueramt.zh.ch/html/form...ntrag-e01r.pdf

3) You will pay some tax upon withdrawing this amount (this is to avoid tax evasion) The amount depends on Canton etc but it is still lower than income tax

4) You can withdraw the amount if you are buying a houise, setting up a business or leaving the country

5) There is no minimum amount you will pay each year. the maximum amoutn is 6365 for year 2007 if you belong to a second pillar (your company pension fund) If not, the max amoutn is around 30 K.

Cheers,
Cristina
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Old 27.11.2007, 12:15
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Re: 3rd Pillar Pension Fund CLARIFICATIONS

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A few clarifications :-)


5) There is no minimum amount you will pay each year. the maximum amoutn is 6365 for year 2007 if you belong to a second pillar (your company pension fund) If not, the max amoutn is around 30 K.
Kri, this is personally very interesting ... can you point me in the right direction, as this is not something I have heard of before. Would this be possible for someone self employed ?

thx
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Old 27.11.2007, 12:22
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Re: 3rd Pillar Pension Fund CLARIFICATIONS

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5) There is no minimum amount you will pay each year. the maximum amoutn is 6365 for year 2007 if you belong to a second pillar (your company pension fund) If not, the max amoutn is around 30 K.

Cheers,
Cristina
Actually if you are self employed the limit is 31824 or 20% of your turnover whichever is the lower...
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Old 27.11.2007, 12:27
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Re: 3rd Pillar Pension Fund

Hello!

Yes, this is exactly fo rpeople who are self employed and therefore do not have a second pillar. In this case, you can invest 20% of your income with a max of around 30 K.

http://www.ubs.com/1/e/ubs_ch/privat...a/savings.html

(I pasted this becausein english. would encourage you to compare interest rates as some other smaller bansk are better than UBS)

Cheers,
Cristina
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Old 27.11.2007, 22:15
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Re: 3rd Pillar Pension Fund

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Credit Suisse also has a guaranteed return product for the 3a account. Guaranteed return of 7.5% plus additional upside potential based on performance of the SMI. Check out the attachment for more info, sorry it is only in Deutsch for the moment.

Cheers,
Shiny
Is this a minimum return of 7.5% over 5 years? That's what it looks like to me.
Does anyone know how this compares with the Winterthur guaranteed rate? I can't seem to find this figure on the Winterthur website.

Thanks!
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