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Old 26.09.2019, 18:41
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Is it worth making voluntary contribution of the pension fund

Dear EF members,

I have been living and working in Switzerland for about 9 years. I have a gap in my Pension Fund, where I can make self contribution to top it up.

I have earned some special bonus this year and was thinking of moving it to my pension fund to save tax on the increased income.

Is it a wise decision to make voluntary contribution to the pension fund? One of the benefit is that it will reduce my taxable income for this year, also I will have some interest generated (about 1%) on it from the pension fund, though, bank is not giving any interest on the saving.

I am already contributing to Pillar 3 every year.

I need your advice, if one should make voluntary contribution to the pension fund or not?

Are there any other ways to save tax?

Thanks in advance for sharing your thoughts.
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Old 26.09.2019, 18:58
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Re: Is it worth making voluntary contribution of the pension fund

It is a trade of between saved taxes and potential lost profit you could get if you invest the same money minus taxes paid in a non-taxed preferred investment scheme.

There are people in this forum which argue that you are better of if you invest it in an index fund such as Vanguard 500 or even better in managed fund as Fundsmith.

Pillar 2 gives you: Heavily CHF hedged investment, annuity if you reach pension age, taxed once you get the money, protection from in case of personal "bankruptcy", potential survivor pension.

Just one important tip: Read and understand how and how much your pensions plan will pay out in event of untimely death and permanent disability. Evaluate performance and coverage ratio, you do not want to pay into a pension fund which has not enough coverage. Be aware once paid into pension fund you can only retrieve the money under few certain specific conditions (retiring, moving abroad, self employment, disability, and financing of self lived in real estate).
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Old 27.09.2019, 11:58
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Re: Is it worth making voluntary contribution of the pension fund

Personally I do make extra voluntary payments to my 2nd pillar. The reasons being to save tax, and also in my company pension, the "value" inside increases with payrises, so actually I've made a decent return since starting.

That amount can be used to purchase a property, or taken as cash if you leave the country (tax must be paid).

I don't make huge payments to the 2nd pillar, it's in addition to usual investment (stock market) outside a pension. I also use the 3rd pillar.

Now that I'm married we'll be continuing to make 2nd pillar payments to reduce the tax (now that we pay the dreaded DINK tax rate).
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Old 27.03.2021, 13:04
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Re: Is it worth making voluntary contribution of the pension fund

Thanks for this post, really useful.

I'm in a slightly different situation. I recently changed job, I work 100% and my salary is above 100K. My current employer's PF contribution is too low and they don't intend to increase it. Juts for comparison, Current employer's contribution is less than half of my previous employer's contribution which was 500CHF monthly. With my previous employer ,the projected pension at age 65 would have been around 800K but with my current employer its only 450K at 65.

Despite the low pension contribution, i like my current job and don't intend to change anytime soon. does it make case sense for me to voluntarily contribute more from my savings into my PF or rather invest it in the stock market? I already do invest in Index funds and stocks.
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Old 27.03.2021, 13:12
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Re: Is it worth making voluntary contribution of the pension fund

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Thanks for this post, really useful.

I'm in a slightly different situation. I recently changed job, I work 100% and my salary is above 100K. My current employer's PF contribution is too low and they don't intend to increase it. Juts for comparison, Current employer's contribution is less than half of my previous employer's contribution which was 500CHF monthly. With my previous employer ,the projected pension at age 65 would have been around 800K but with my current employer its only 450K at 65.

Despite the low pension contribution, i like my current job and don't intend to change anytime soon. does it make case sense for me to voluntarily contribute more from my savings into my PF or rather invest it in the stock market? I already do invest in Index funds and stocks.
Since I think you have along way to go to retirement probably not. Legally you only need to have Pillar 2 paid on about 60k of salary, so sounds like your employer is paying what is required by law.
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Old 28.03.2021, 23:16
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Re: Is it worth making voluntary contribution of the pension fund

It's a personal choice based not least on items already mentioned on this thread.
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