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Old 25.09.2012, 12:03
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retrospective pension contribution after salary increase?

Today my colleague told me something I didn't know before. He said, in case of salary increase, your pension contribution (AHV...) will also increase (of course). But, this increase of pension contribution is retrospective, which means, you will pay extra contribution to fill the historical gap, so that your accumulated pension contribution when you retire will be "as if" you have been always at your last salary in all your working life.

Then because of this, sometimes when you get a sudden salary increase after working at a lower salary for quite some time, there will be a heavy burden to fill the historical pension gap and what you actually get on your bank account might be almost the same as before, or even a little less.

Is that correct? I feel quite surprised on this, or perhaps this is just common sense and I'm just too uninformed?
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Old 25.09.2012, 12:05
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Re: retrospective pension contribution after salary increase?

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Today my colleague told me something I didn't know before. He said, in case of salary increase, your pension contribution (AHV...) will also increase (of course). But, this increase of pension contribution is retrospective, which means, you will pay extra contribution to fill the historical gap, so that your accumulated pension contribution when you retire will be "as if" you have been always at your last salary in all your working life.

Then because of this, sometimes when you get a sudden salary increase after working at a lower salary for quite some time, there will be a heavy burden to fill the historical pension gap and what you actually get on your bank account might be almost the same as before, or even a little less.

Is that correct? I feel quite surprised on this, or perhaps this is just common sense and I'm just too uninformed?
It's the first time I hear it.

What you can do though is make voluntary payments (they are tax deductible) to fill the gap in your pension contributions.
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Old 25.09.2012, 12:08
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Re: retrospective pension contribution after salary increase?

This is true for the 2nd pillar (your company pension). You have the option to backfill it to the point where it reflects your new higher income as if you had always earned it. What you pay in is also tax deductible (I know, we did it). I don't think this has any relevance on AHV, but I am not sure.
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Old 25.09.2012, 12:11
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Re: retrospective pension contribution after salary increase?

I am almost sure that you are mistaken.

You have the option to fill in the gap as Karl above has pointed out, but I do not believe that they will automatically make higher deductions. You might want to ask around...
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Old 25.09.2012, 12:13
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Re: retrospective pension contribution after salary increase?

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It's the first time I hear it.

What you can do though is make voluntary payments (they are tax deductible) to fill the gap in your pension contributions.
Yes. It is also the first time I heard about this and I feel quite surprised, but my colleague seems very sure. A couple years ago he got a salary increase as declared in the contract, but he actually got almost the same on the bank account. He went to the personnel department to ask, and they gave him that answer...

It sounds very weird if this retrospective "gap filling" is mandatory, especially when you get a considerable salary increase after many years of work, no? Yes the contribution can still be (kindof) considered as yours after your retirement, but then it is like a forced saving...

Also, if this is mandatory, then what happens in case of salary decrease? They pay you back part of your past pension contribution in cash to "throw the excess"?
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Old 25.09.2012, 12:15
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Re: retrospective pension contribution after salary increase?

For the 2nd pillar it it NOT mandatory. It is OPTIONAL as I originally wrote.
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Old 25.09.2012, 12:18
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Re: retrospective pension contribution after salary increase?

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For the 2nd pillar it it NOT mandatory. It is OPTIONAL as I originally wrote.
OK thanks. This retrospective payment will be paid solely by the employee, or will be shared by the employee and employer just like the "normal" contributions? I guess the former, because the employer has no obligation to fill the gap for you, I guess?
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Old 25.09.2012, 12:25
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Re: retrospective pension contribution after salary increase?

Soley by the employee.
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Old 25.09.2012, 12:28
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Re: retrospective pension contribution after salary increase?

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This is true for the 2nd pillar (your company pension). You have the option to backfill it to the point where it reflects your new higher income as if you had always earned it. What you pay in is also tax deductible (I know, we did it). I don't think this has any relevance on AHV, but I am not sure.
Also I have another question. The 2nd pillar is run by different organizations/companies with potentially different contribution rate, right? Then in case of changing employer, your accumulated 2nd pillar contribution will be transferred to a new company. How they deal with the different rate? They make mandatory or optional back adjustment?
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Old 25.09.2012, 12:33
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Re: retrospective pension contribution after salary increase?

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Also I have another question. The 2nd pillar is run by different organizations/companies with potentially different contribution rate, right? Then in case of changing employer, your accumulated 2nd pillar contribution will be transferred to a new company. How they deal with the different rate? They make mandatory or optional back adjustment?
The rate is the same for all: 7 percent.
What is different is how much of that 7 percent is subsidized by your employer (if at all).
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Old 25.09.2012, 15:57
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Re: retrospective pension contribution after salary increase?

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For the 2nd pillar it it NOT mandatory. It is OPTIONAL as I originally wrote.
I confirm it is optional and I never heard of it being mandatory. If you want to be sure ask HR for a copy of the "pensionskasse reglement" and PM me and I will check it.
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Old 25.09.2012, 16:06
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Re: retrospective pension contribution after salary increase?

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The rate is the same for all: 7 percent.
What is different is how much of that 7 percent is subsidized by your employer (if at all).

This all sound a bit jumbled up. I am assuming we are talking about defined contributions here (not the rare Swiss animal defined benefit/final salary scheme).

Legal minimum contributions to the second pillar are based on age category and are to be shared as a minimum equally between employer and employee. The employer can chose to contribute more and/or make both the employee and employer contribute more.

These contributions are based on your actual salary payments. Your ability as an employee to make extra contributions will exists because your lifetime maximum contributions are based on your current salary and age related contribution %. You might also be allowed to buy early retirement contributions.

Some of the contributions (say 1.5% of salary) go for insurance components (eg widows pension, death in service) and administration. The rest is your saving pot (guthaben/avoir veillesse) which is portable between employers (or into a free-movement blocked account freizugigkeits konto if you do not go directly back into employment). The savings amount grows each year with tax free interest, again there is a legal minimum rate and the employer can pay more too.

When you go to a new employer you just carry on saving each month. If that employer has higher contribution rates you will save more, if less you will save less (even if you were already maxed out on extra contributions).

When you retire you can take a mixture of lump sum or pension. If you take a pension it is the last employer's pension fund that will determine the annuity rate you get from your saving pot (with a legal minimum rate). If you take a lump sum you are taxed depending on your canton of residence if you still live in CH.

The pension fund manages the pensions savings of all the past and present members to be able to i) cover costs ii) pay annual interest on current members iii) be able to fund the transfers out and pensions until the last member dies (eventually). If there is a deficit of assets vs actuarial liabilities they may need to take measures to restore positive funding such as reduced interest, higher funding etc.

Thats a quick overview, hopefully helpful.
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Last edited by dannyt986; 25.09.2012 at 16:11. Reason: Typos, enhancements
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