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Old 28.10.2020, 00:18
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Max pillar 2 pension contribution

As December comes close and I think about tax is like to check what the max pillar 2 contribution is if you are a b permit holder

1). I got a pay rise in April so is the 20% of old or new or blended salary
2) is bonus ignored
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Old 28.10.2020, 03:16
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Re: Max pillar 2 pension contribution

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As December comes close and I think about tax is like to check what the max pillar 2 contribution is if you are a b permit holder

1). I got a pay rise in April so is the 20% of old or new or blended salary
2) is bonus ignored
Amount received
Subject to normal deductions so pensionable.

Swiss pensions are a poor investment, think carefully.
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Old 28.10.2020, 08:45
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Re: Max pillar 2 pension contribution

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Amount received
Subject to normal deductions so pensionable.

Swiss pensions are a poor investment, think carefully.
Thirty years working in areas of performance and attribution, tells me that vast majority of individuals make very poor fund managers. Oh they all think they can do a better job than the professionals and they’ve read enough DIY books to convince themselves that they can. But in reality they’ll be lucky to end up with the money they started out with and even that is a loss.

Swiss pensions are a good option for most people, because it protects them from themselves.
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Old 28.10.2020, 09:21
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Re: Max pillar 2 pension contribution

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Thirty years working in areas of performance and attribution, tells me that vast majority of individuals make very poor fund managers. Oh they all think they can do a better job than the professionals and they’ve read enough DIY books to convince themselves that they can. But in reality they’ll be lucky to end up with the money they started out with and even that is a loss.

Swiss pensions are a good option for most people, because it protects them from themselves.
Swiss pensions are not invested as a long term investments, too much bonds & too little equities. I suspect over 30 years 100% of Swiss pensions have underperformed the SMI by more than 30%.

Do you have some figures for the Top 10 Swiss pension funds please, perhaps the under performance is more than 50%.
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Old 28.10.2020, 10:33
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Re: Max pillar 2 pension contribution

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Swiss pensions are not invested as a long term investments, too much bonds & too little equities. I suspect over 30 years 100% of Swiss pensions have underperformed the SMI by more than 30%.

Do you have some figures for the Top 10 Swiss pension funds please, perhaps the under performance is more than 50%.

It's probably more interesting to do the maximal contribution to the 3rd pillar this year and to put any extra money aside in anticipation of the 3rd pillar reforms that will allow one to catch up past, missed contributions. And put all that money in a more agressive 3rd pillar institution like VIAC.
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Old 28.10.2020, 10:47
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Re: Max pillar 2 pension contribution

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Thirty years working in areas of performance and attribution, tells me that vast majority of individuals make very poor fund managers. Oh they all think they can do a better job than the professionals and they’ve read enough DIY books to convince themselves that they can.

Is as simply as selecting a managed fund which performs around 1 to 2% better than your yearly pension interest to beat the tax advantage.

This shouldn't be hard as even many Swiss pension funds perform at least 3% better than interest paid.
https://www.pensionskassenvergleich....2020/index.php
See Anlagerendite vs. Verzinsung.

Or in other words even if your portfolio underperforms in respect to your pension fund's performance you will still end up with more money in the end.

Pillar 2 would look better if the employees could participate in the full pension fund performance. Unfortunately a disproportion large part of the yearly performance is used to finance the rent of the pensioners.
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Old 28.10.2020, 11:50
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Re: Max pillar 2 pension contribution

Thanks all for reply

My plan is to park cash in pension for a few years max before i go back to the UK at which point I will use the pension to pay the mortgage

So I am only paying to pension to reduce my taxes and treating it as a bank account. The pillar 2 guarantess my capital and guarantess plus 1% interest which is quite good risk free

I dont have a 30 year outlook because i wont be here for that long

1) What pillar 3 changes are you talking about
2) Is bonus included and is it 20% or comibined salary plus bonus that you can pay ?!
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Old 28.10.2020, 11:54
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Re: Max pillar 2 pension contribution

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Amount received
Subject to normal deductions so pensionable.

Swiss pensions are a poor investment, think carefully.
Is this the case even when you calculate the tax break? What's the horizon you're looking at?
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Old 28.10.2020, 12:01
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Re: Max pillar 2 pension contribution

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Thanks all for reply

My plan is to park cash in pension for a few years max before i go back to the UK at which point I will use the pension to pay the mortgage

So I am only paying to pension to reduce my taxes and treating it as a bank account. The pillar 2 guarantess my capital and guarantess plus 1% interest which is quite good risk free

I dont have a 30 year outlook because i wont be here for that long

1) What pillar 3 changes are you talking about
2) Is bonus included and is it 20% or comibined salary plus bonus that you can pay ?!

I can only respond to one point.
Third pillar contributions are subject to an annual maximum like 6'800 CHF.

Presently, one can only contribute for the year in progress.
Therefore, the years that one has missed are 'lost'.
The federal government will change that so that one can contribute for the missed years.
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Old 28.10.2020, 12:17
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Re: Max pillar 2 pension contribution

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2) Is bonus included and is it 20% or combined salary plus bonus that you can pay ?!
The 20% limit is only relevant for new residents during the first 5 years. So, many will not be aware about it and the actual rule.

The 100% reference is the insured income according your pension plan. https://www.ag.ch/media/kanton_aarga...re_Saeule2.pdf .

This can be drastically lower than your actual income. The simplest thing is to contact your pension provider and ask for a voluntarily contribution calculation (Einkaufsberechnung/Berechnung der möglichen Einkaufssumme). This will show exactly how much you can pay in.
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Old 28.10.2020, 12:17
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Re: Max pillar 2 pension contribution

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I can only respond to one point.
Third pillar contributions are subject to an annual maximum like 6'800 CHF.

Presently, one can only contribute for the year in progress.
Therefore, the years that one has missed are 'lost'.
The federal government will change that so that one can contribute for the missed years.
Do you have a link to this change? I haven't heard of this until you mentioned it.
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Old 28.10.2020, 12:20
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Re: Max pillar 2 pension contribution

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It's probably more interesting to do the maximal contribution to the 3rd pillar this year and to put any extra money aside in anticipation of the 3rd pillar reforms that will allow one to catch up past, missed contributions. And put all that money in a more agressive 3rd pillar institution like VIAC.
What reforms are you referring to?
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Old 28.10.2020, 12:28
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Re: Max pillar 2 pension contribution

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Is this the case even when you calculate the tax break? What's the horizon you're looking at?
Anything ,ore than 10 years. But depending on your marginal tax rate and final pay out tax it can be much less.

10% payout tax.


15% payout tax.


How to read: The table shows how many % better your alternative non-tax-preferred investment must perform to beat pillar 2 or 3 depending on your marginal income tax rate a numbers of years the money is in pillar 2/3.
Math: https://www.englishforum.ch/3219032-post10.html

If you have self lived in real estate you can pull out money every 5 years. This is one of the most efficient use of pillar 2 and 3. (Some limitations apply to pillar 2).
https://www.bsv.admin.ch/bsv/de/home...oerderung.html

For lumpsum payout tax see: https://www.postfinance.ch/en/privat...m-payment.html
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Old 28.10.2020, 13:15
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Re: Max pillar 2 pension contribution

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Is this the case even when you calculate the tax break? What's the horizon you're looking at?
Yes.

All horizons 1 year, 5 years, 5 years, 10 years etc

Since you benefit from compounded returns, underperformance over many years has a huge effect

eg 25k 30 years @3% 60,681
25k 30 years @6% 143,587
25k 30 years @10% 436,235
25K 30 years @13.1% 1,004,195

So yes investing 25k in something like Fundsmith over 30 years could grow 40 fold rather than doubling.
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Old 28.10.2020, 13:26
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Re: Max pillar 2 pension contribution

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Do you have a link to this change? I haven't heard of this until you mentioned it.

https://www.moneyland.ch/en/pillar-3...ons-in-arrears
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Old 28.10.2020, 13:28
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Re: Max pillar 2 pension contribution

The performance of at risk equity funds versus cash is highly debatable - Look at the FSE 100 and you will see 20 years has provided no return exceluding dividends

Nikkei is even worse

For most people who come to switzerland for five odd years and *DO* plan to leave back to the UK rather then live here forever the pillar 2 pension is not to get a return but to save the 10 / 15% tax.


The pillar 2 is marketed as an effective risk free positively paying account which can be taken out in full to finance a property upon departure - For this reason alone I am making overpayments to the max allowed on the understanding that tax today is saved but the funds will be available for withdrawal when I leave to the UK for repayment of a mortgage.

Is my understanding and assumption on pillar 2 tax and mortgage repayment correct? Next year i will be five years in CH and C Permit hopefully and I am considering parking 80% of my salary into the pillar 2 whilst taking out cheap credit in the UK... If that understanding is incorrect I would like to know

EDIT : How can I calculate the marginal rate of tax for me - If anyone has a worked example that would be super helpful

Last edited by NewInSchwyz; 28.10.2020 at 13:47.
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Old 28.10.2020, 13:54
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Re: Max pillar 2 pension contribution

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The performance of at risk equity funds versus cash is highly debatable - Look at the FSE 100 and you will see 20 years has provided no return exceluding dividends

Nikkei is even worse

For most people who come to switzerland for five odd years and *DO* plan to leave back to the UK rather then live here forever the pillar 2 pension is not to get a return but to save the 10 / 15% tax.


The pillar 2 is marketed as an effective risk free positively paying account which can be taken out in full to finance a property upon departure - For this reason alone I am making overpayments to the max allowed on the understanding that tax today is saved but the funds will be available for withdrawal when I leave to the UK for repayment of a mortgage.

Is my understanding and assumption on pillar 2 tax and mortgage repayment correct? Next year i will be five years in CH and C Permit hopefully and I am considering parking 80% of my salary into the pillar 2 whilst taking out cheap credit in the UK... If that understanding is incorrect I would like to know

EDIT : How can I calculate the marginal rate of tax for me - If anyone has a worked example that would be super helpful
FTSE full of banks, insurance & oil, business's with a high dividend payout, they realise they can not reinvest profits well. Dividend yield is 3.69% v cash at close to zero. S&P 500 yields 1.75%, hardly surprising why the capital growth has been better. The Nikkei was hugely overpriced not unlike NASDAQ today
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Old 28.10.2020, 14:03
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Re: Max pillar 2 pension contribution

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The performance of at risk equity funds versus cash is highly debatable - Look at the FSE 100 and you will see 20 years has provided no return exceluding dividends

Nikkei is even worse

For most people who come to switzerland for five odd years and *DO* plan to leave back to the UK rather then live here forever the pillar 2 pension is not to get a return but to save the 10 / 15% tax.


The pillar 2 is marketed as an effective risk free positively paying account which can be taken out in full to finance a property upon departure - For this reason alone I am making overpayments to the max allowed on the understanding that tax today is saved but the funds will be available for withdrawal when I leave to the UK for repayment of a mortgage.

Is my understanding and assumption on pillar 2 tax and mortgage repayment correct? Next year i will be five years in CH and C Permit hopefully and I am considering parking 80% of my salary into the pillar 2 whilst taking out cheap credit in the UK... If that understanding is incorrect I would like to know

EDIT : How can I calculate the marginal rate of tax for me - If anyone has a worked example that would be super helpful
Even over a 5 year time span I would be investing in equities over pillar 2. Especially as you are in low tax Schwyz. But hey ho - your choice. At the minimum time period of 3 years perhaps then I would go with pillar 2 if I was in high tax canton.

P.S. I'm not sure of the relevance of the FTSE as no thinking person would invest in a FTSE tracker. And your calculation should be including dividends.

Last edited by HickvonFrick; 28.10.2020 at 14:19.
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Old 28.10.2020, 14:15
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Re: Max pillar 2 pension contribution

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Is my understanding and assumption on pillar 2 tax and mortgage repayment correct? Next year i will be five years in CH and C Permit hopefully and I am considering parking 80% of my salary into the pillar 2 whilst taking out cheap credit in the UK... If that understanding is incorrect I would like to know
The money from pillar 2/3a can only be used to finance self lived in real estate. More or less your primary residence. Putting in 80% might not be that most tax efficient option unless you neither hit that cap and intend to pullout the money within a short period. Be aware that if you reside in Switzerland there is a minimum lock in period of three years.

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EDIT : How can I calculate the marginal rate of tax for me - If anyone has a worked example that would be super helpful
absolut marginal rate = |(new_tax - old_tax)/old_tax|

old_tax: tax before reduction/increase of income.
new_tax: tax after reduction/increase of income.

A bit tricky as you have to take into account the federal, communal and cantonal tax.

If you know your taxable income use this calculator https://swisstaxcalculator.estv.admi...ome-wealth-tax to calculate the tax with the changed income.
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Old 28.10.2020, 14:29
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Re: Max pillar 2 pension contribution

My taxable income is 135 after deudctions like travel etc ....

I can make 35K contributions which is the 20% cap - No kids no church just 40

At 135K
Tax breakdown
Cantonal tax7’016 CHF
Communal tax3’508 CHF
Church tax0 CHF
Personal tax0 CHF
Direct federal tax5’646 CHF
Total tax
16’170 CHF


At 100K after making the 35k pension
Tax breakdown
Cantonal tax4’832 CHF
Communal tax2’416 CHF
Church tax0 CHF
Personal tax0 CHF
Direct federal tax2’702 CHF
Total tax
9’950 CHF

So deferring 35K results today in a 6.5K saving which is a 19% saving....

When I leave I pay 5% payout tax so its 14% deferral for saving it in pillar 2 instead of cash savings account at my bank....

Thats for schwyz - So definitely worth it
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