Hi, my boss gave me an option to either invest my earnings in 2. pillar or pay them out as bonus (I have a fixed salary but my earnings are variable and usually higher than salary, so it builds up over the year). He said the minimum is 1'000 per year and there is no maximum, I could pay even 50'000 if I wanted.

The obvious benefit of 2. pillar would be, that I would not have to pay the social contributions and income tax. However, I have no idea what the Pensionskasse is doing with this money. I heard that this money has a state-guaranteed minimum growth rate, is that true? Can you tell me how it works? What ar the typical annual returns of 2. pillar and typical custody fees.

My alternative is to pay out as bonus and pay the taxes, probably around 35%. Then I would invest it into VT or VTI.

The instant tax relief is tempting, but the setback are lower returns and in the end there will also be a small tax to pay when I pay it out, right? I could leave Switzerland in a couple of years, and then it is definitely a good deal.

So what's your opinion, what's your advice?

If you had it paid out as bonus, couldn't you pay more into your 2nd pillar with some /all of that anyway, and then get the tax back on that at the end of the year?


Regarding pension vs. cash...it depends on your situation - if you plan to buy a house, if you plan to stay here long term, etc. If you leave Switzerland you'll have to pay tax to take it as cash but I believe it's generally lower than the tax return your received for paying in...

Likely to be a poor LONG TERM investment as you tie up the money at poor rated of return. I bought an extra 38,000 CHF of back years, 10 years later very little change in value. The S&P 500 would have been way better, remember as a pension fund rises in value so does the tax bill on exit.

My summarised view is:

- 2nd pillar = stable and secure, tax friendly on paying in = invest for very basic level of retirement I need

- 3a pillar = better return, tax friendly on paying in, limited amount = invest the max, with maximum risk / equity proportion (but anyway mandated by my mortgage)

"3b pillar" (i.e. nothing really to do with pension!) = much better return & more flexible = invest everything else in order to get the retirement I want

Pillar 2 has some guaranteed rates of pension return, highest for mandatory contributions. Pillar 3 does not have those guarantees & I am not convinced you will get better returns.

So my boss tells me that this GEMINI is a company pension fund. So the money is not invested by me, but by the company directly (but the money belongs to me). This way, the social contributions and the income tax will be saved. He also said that the fund will not accept any amount, max 30'000, maybe 50'000. But I calculated that this would save me around 40% in taxes, so I either let 50'000 go into 2. pillar or get 30'000 paid as bonus into my pocket (20'000 lost on taxes).

I also checked the performance of GEMINI. In the last 10 years they were just shy of 3%, but in 2016 they were under 2%. The invest even 50% into stocks in one of their plans. Any other thoughts?

I can't believe your tax saving will be anything like 40%, unless your an extremely high earner when reducing your salary by 50,000. I guess nearer 10% possibly less.

EDIT I suspect the only way the tax rate could hit 40% if your taxed at source, get the payment spread over 4 - 6 months & the tax rate will fall like a stone, you favour pound cost averaging so a double win.

In 2015 it was 1.25%, 2016 it was 1% - in the same period the return on my 3a was ca. 4% p.a.

Neither is very good compared to a decent performing open fund - but at least both they have an up-front tax benefit on top which prevents them being totally awful vs their risk...

On the specific question, I think it's impossible to say without knowing the whole situation - and since OP reckons a 40% tax saving that suggests a very high rate & income in which case why not get proper advice !

Wouldn't it be the same to have it paid in cash to you (30,000), and then you can choose to put whatever you want into pillar 2, pillar 3a, or invest it without a pension? You would still benefit from the tax return..


Or does your company not allow payments into the 2nd pillar like that? (e.g. buy-back / buy-forward).

Your forgetting about the guaranteed pension level in retirement.1 year is way too short, you should be looking at 10 year returns & longer when comparing pensions.

Well I go to ESTV website and put in 200'000, gemeinde Zurich. The Steuerbelastung is 43'100. Then I put 150'000 and it's 26'600. That's 16'500 saved in taxes, 33%. And you also save a few thousand on the social contributions. What am I calculating wrong?

I'm not sure how it works, but isn't this 1.25% only the guaranteed return, i.e. it can be higher? On the website of GEMINI they write that their most aggressive Gemini Pool 50 returned 4.1% in 2016, 2.9% in the last 10 years. Mind you, S&P 500 Total Return in CHF was 4.6% for the same period (last 10y).

Why would invest in a pension pillar after the money has been taxed? The precise advantage is that they put the money into the pension fund before they pay me, which lowers my salary, so I pay less social contributions and taxes.

I have no idea how that Gemini fund works - if you look at their Money Market fund the ten year return is effectively zero.

So how does this fit with a minimum interest of > 1% p.a. ?

Is this some exception to the Pillar 2 rules, or is it not Pillar 2?

No, you pay social security on all gross income

But if you were to then declare any pension contributions at the end of the year, you would get all of the tax back, no ?

You would have higher deductions..... I did not realise you were earning 200k


You get tax relief if you do............

Boss told me the difference between paying to 2. pillar privately and though company is that when it's through the company then it is not counted as gross income, so the social contributions will be spared. That's what his berater told him.

I guess you're right. I'm still taxed at source so initially the tax would be charged, but then I could claim it back in my tax declaration. That's what the boss said: the only difference is that when I do it through the company then I save on social contributions. But what would be the point of doing it this way, if it can be done directly?

You mean business lunch, transport, laptop, phone? I guess this will make up to around 10'000. Doesn't make much difference. So is my calculation correct?

To give you a bit more freedom I guess - e.g. to only put 20% in 2nd pillar, max out 3rd pillar, and invest the rest...or whatever you want. You'll still benefit from the tax refund on any pension contributions.


For the social contributions, I have no idea though.

Normally first step is that you send a form to pillar 2 company about how much maximum you can buy. When I sent this form they told me that I can only invest maximum 20% of the insured salary in first 5 years by law or that is what ZH tax office will consider as a deduction .

Correct, after 5 years you will get information on how much you can add in total, some amount counting the hundredthousands....