Go Back   English Forum Switzerland > Help & tips > Finance/banking/taxation  
Reply
 
Thread Tools Display Modes
  #1  
Old 21.11.2021, 00:09
Senior Member
 
Join Date: Oct 2020
Location: Vaud
Posts: 287
Groaned at 18 Times in 12 Posts
Thanked 119 Times in 83 Posts
Gravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputation
What's the cost of topping up 2nd pillar

I've learned that I can save on taxes by topping up my 2nd pillar, but I also recently read some article about how "expensive" 2nd pillar funds are, taking hefty commission.


If I decide to top up my account how much would be credited? Is there any way to estimate it, any regulations or do I have to inquiry at my 2nd pillar fund? For example if I decide to top up 20 or 30k

Secondly, how much can I withdraw from a 2nd pillar to finance a property purchase? I know that I would have to wait 3 years to unlock the topped up money. However I've read some thread where it was said something between the lines that one can finance only 10% of the property from the 2nd pillar but I can't find any regulation regarding that.

I'm trying to do the math:
- topping up 2nd pillar = X saved on tax at marginal rate
- using the money for property purchase = Y withdrawal tax


Assuming I'll withdraw at some point the money I topped up (even by several years, giving me instant returns X each year), the tax savings would be sum(X) - Y, but if some deductions D are taken from my top up, than it effectively becomes sum(X) - Y - sum(D)


I'm trying to estimate the profitability of it. The caveat is, once the money land in 2nd pillar they remind there (poorly invested) until I reach the retirement age. I'm thinking of buying a property, but plans are plans so I might end not buying anything. Of course, I don't want to mix in here another what-if scenario comparing it with investing the money instead of topping up 2nd pillar.
Reply With Quote
  #2  
Old 21.11.2021, 01:13
eyebeebe's Avatar
Forum Veteran
 
Join Date: May 2009
Location: Pfäffikon SZ
Posts: 2,235
Groaned at 20 Times in 19 Posts
Thanked 2,983 Times in 1,264 Posts
eyebeebe has a reputation beyond reputeeyebeebe has a reputation beyond reputeeyebeebe has a reputation beyond reputeeyebeebe has a reputation beyond reputeeyebeebe has a reputation beyond reputeeyebeebe has a reputation beyond repute
Re: What's the cost of topping up 2nd pillar

You will reduce your income tax and wealth tax at your marginal rate. In Vaud that is likely to be a substantial percentage. Take your net income from last year, go to your cantonal tax website and put it into their calculator. Deduct your planned pension top up and enter it again. The difference is your immediate gain.

The downsides of doing this are twofold. Firstly you cannot freely invest as you wish, so you may leave some investment returns on the table. My 1e investment plan is 70% diversified global investments, so not optimised to my view, but no terrible. Second is that the management fee can be heavy. Mine is more than reasonable for an actively managed fund. I say both of these things because the pension fund can be shitty, but it can also be pretty decent. You need to check the details of your fund.

Regarding property... 10% has to be self funded, be that from cash or from pledges of non-pension assets. You could put down 10% cash and withdraw the other 90% from your pension fund, assuming it's big enough. Once you have the 10% from own funds, you can also pledge the pension, so you don't need to withdraw it and pay the tax. You just pay more interest as you are borrowing more. Mentioning this in case your pension fund is aligned with your investment strategy and is well priced. I withdrew mine, but in hindsight should have left it in and pledged it - I'm guaranteed a higher rate of return from the fund than my mortgage. Ideology won over mathematics at the time.
Reply With Quote
The following 2 users would like to thank eyebeebe for this useful post:
  #3  
Old 21.11.2021, 02:49
Phil_MCR's Avatar
Forum Legend
 
Join Date: Oct 2009
Location: Basel
Posts: 14,665
Groaned at 283 Times in 188 Posts
Thanked 18,518 Times in 7,771 Posts
Phil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond repute
Re: What's the cost of topping up 2nd pillar

I'd put more into 2nd pillar if I had better options. highest equity option is: 40% is equity and 40% is in bonds.
Reply With Quote
  #4  
Old 21.11.2021, 11:59
Senior Member
 
Join Date: Oct 2020
Location: Vaud
Posts: 287
Groaned at 18 Times in 12 Posts
Thanked 119 Times in 83 Posts
Gravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputation
Re: What's the cost of topping up 2nd pillar

My pension fund doesn't let me adjust anything. The yield is just 1%.


From another angle, I compared how much money from my monthly deduction is booked on my account. It's ~20% less than 2x my contribution (as AFAIK the employer has to match my contribution).

That's why I started this thread. If my voluntary contribution could get reduced by 20% as well, that's worst than doing nothing and paying the taxes. Pension withdrawal tax is > 10% in Vaud.
Reply With Quote
  #5  
Old 21.11.2021, 12:26
Forum Veteran
 
Join Date: Jul 2013
Location: Olten
Posts: 633
Groaned at 67 Times in 54 Posts
Thanked 500 Times in 295 Posts
hoover1 is considered knowledgeablehoover1 is considered knowledgeablehoover1 is considered knowledgeable
Re: What's the cost of topping up 2nd pillar

based on my calculations it pays off only to pay up to 2A when you plan early retirement - yes, you lower your tax in given year , however older you get , more you earn and that is also the time 2A is going up (at age of 45,50,55 ) and ends up at I believe 20% of your gross , where employer must match it.

So when you look that way you may pay every year till you are 55, than stay at the job for another 5years and retire at 60 - having capital that you'd normally have to work till 65. That being said up-pay for 5-years in advance , leave job early ( hunt for company that would pay you for leaving job at 60 etc).

Other than that - investing may be better option
Reply With Quote
  #6  
Old 21.11.2021, 12:57
Senior Member
 
Join Date: Oct 2020
Location: Vaud
Posts: 287
Groaned at 18 Times in 12 Posts
Thanked 119 Times in 83 Posts
Gravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputation
Re: What's the cost of topping up 2nd pillar

Quote:
View Post
based on my calculations it pays off only to pay up to 2A when you plan early retirement - yes, you lower your tax in given year , however older you get , more you earn and that is also the time 2A is going up (at age of 45,50,55 ) and ends up at I believe 20% of your gross , where employer must match it.

So when you look that way you may pay every year till you are 55, than stay at the job for another 5years and retire at 60 - having capital that you'd normally have to work till 65. That being said up-pay for 5-years in advance , leave job early ( hunt for company that would pay you for leaving job at 60 etc).

Other than that - investing may be better option

I'm sorry, I don't follow. It's true that the amount of contribution grows with your age (percentage bracket) and your salary, and your employer has to match your contribution. However employer doesn't match your voluntary contributions, which are always credited in "extra mandatory" pool.

Also there's a limit how much you can accumulate on your 2nd pillar. It's a bit funny but the current limit depends on your age and your current salary. It's more beneficial to leave "a gap" in your contribution until you earn high salary, thus the marginal tax gets high. I also agree that it's only beneficial if you are planning to take out the money within a few years, otherwise you might earn more by investing the money on your own long term.

In my case the 2A "gap" is huge as I moved to Switzerland when I was 39. I have about 1/4 of what I'm allowed to have on my 2A. That's nice to plan some tax optimization before buying a property, unless the profit gets eaten by the pension fund by a means of commission(s). I don't know what's going on there as the annual statement from the pension fund doesn't give me the calculation. There's only summary how much I have accumulated, but not how much I've paid, what were the fees, etc. I suspect it's something complex, a percentage could go to invalidity insurance, as it corresponds to the amount on your 2A, a percentage to plain brokerage fees, and maybe something else... It's all hidden from me!
Reply With Quote
  #7  
Old 21.11.2021, 13:06
Forum Veteran
 
Join Date: Jul 2013
Location: Olten
Posts: 633
Groaned at 67 Times in 54 Posts
Thanked 500 Times in 295 Posts
hoover1 is considered knowledgeablehoover1 is considered knowledgeablehoover1 is considered knowledgeable
Re: What's the cost of topping up 2nd pillar

Quote:
View Post
I'm sorry, I don't follow. It's true that the amount of contribution grows with your age (percentage bracket) and your salary, and your employer has to match your contribution. However employer doesn't match your voluntary contributions, which are always credited in "extra mandatory" pool.

Also there's a limit how much you can accumulate on your 2nd pillar. It's a bit funny but the current limit depends on your age and your current salary. It's more beneficial to leave "a gap" in your contribution until you earn high salary, thus the marginal tax gets high. I also agree that it's only beneficial if you are planning to take out the money within a few years, otherwise you might earn more by investing the money on your own long term.

In my case the 2A "gap" is huge as I moved to Switzerland when I was 39. I have about 1/4 of what I'm allowed to have on my 2A.
It's not about your employer matching your pay-up to the program. It's you to overpay the program or then in your case - close the gap that you have due to the fact you started contribution at age 39.

You won't be able to take that money out ever except
- moving out of CH permanently to country where CH has no agreement on (US is example but none-of-EU zone should make payout possible)
or
- becoming self employed
or
- purchase self occupied house in CH

That means you would not see that money ever again.

At retirement you can take decision to pay out part/full or none at all.

Also note that your 2A "gap" is also opening up as you earn more , changing job to lower paid may result in 2A being "over the limit" which may result that new employer won't be able to pay to it on your behalf ( drop from let's say 1m to 100k salary , would likely result in such scenario) . Again - it depends on personal situation
Reply With Quote
  #8  
Old 21.11.2021, 13:16
Senior Member
 
Join Date: Oct 2020
Location: Vaud
Posts: 287
Groaned at 18 Times in 12 Posts
Thanked 119 Times in 83 Posts
Gravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputation
Re: What's the cost of topping up 2nd pillar

Quote:
View Post
It's not about your employer matching your pay-up to the program. It's you to overpay the program or then in your case - close the gap that you have due to the fact you started contribution at age 39.

You won't be able to take that money out ever except
- moving out of CH permanently to country where CH has no agreement on (US is example but none-of-EU zone should make payout possible)
or
- becoming self employed
or
- purchase self occupied house in CH
OK, fully agree, but I started this thread pointing out that my near term goal would be to use 2A to purchase property otherwise, yes, even if 100% of my top up would get credited it's questionable strategy due to how far I am from retirement.

Nonetheless, the question at hand, which is not explained anywhere, is how much (if any) of the top up would be lost immediately upon payment into 2A.
Reply With Quote
  #9  
Old 21.11.2021, 14:47
Forum Veteran
 
Join Date: Jul 2013
Location: Olten
Posts: 633
Groaned at 67 Times in 54 Posts
Thanked 500 Times in 295 Posts
hoover1 is considered knowledgeablehoover1 is considered knowledgeablehoover1 is considered knowledgeable
Re: What's the cost of topping up 2nd pillar

Quote:
View Post
OK, fully agree, but I started this thread pointing out that my near term goal would be to use 2A to purchase property otherwise, yes, even if 100% of my top up would get credited it's questionable strategy due to how far I am from retirement.

Nonetheless, the question at hand, which is not explained anywhere, is how much (if any) of the top up would be lost immediately upon payment into 2A.
none is lost. it's fully credited.

What you 'losing' is interest rates and return that is fixed at some rate.

Please note that should you withdrawn within 3-years following pay-up - you tax be retrospectively updated and you have to pay the difference - so you need to plan when you be purchasing your house.

alternative option there is to pledge 2a as security to the bank , take short-term mortgage (2-3 years) and than withdraw to repay the mortgage - however there be couple other things to consider along the way - like you can't rent that real-estate , you can't call any other place to be your 'primary redidence' and that is the place where 2A payout be taxes - as to have option to move let's say to SZ and pay 3% on payout of 2A vs 10% or whatever is the place you plan to purchase house in.
Reply With Quote
  #10  
Old 21.11.2021, 16:57
Senior Member
 
Join Date: Oct 2020
Location: Vaud
Posts: 287
Groaned at 18 Times in 12 Posts
Thanked 119 Times in 83 Posts
Gravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputation
Re: What's the cost of topping up 2nd pillar

Quote:
View Post
however there be couple other things to consider along the way - like you can't rent that real-estate , you can't call any other place to be your 'primary residence' and that is the place where 2A payout be taxes - as to have option to move let's say to SZ and pay 3% on payout of 2A vs 10% or whatever is the place you plan to purchase house in.

That's a whole new dimension to the topic. So I am allowed to purchase a property in SZ and live wherever I wish but always be taxed in SZ as that would remain my primary residence forever? That'd be nice! Perhaps that explains the flats/rooms to let in ZG/SZ with the fine print saying you cannot register as living there at the commune

Last edited by Gravity; 21.11.2021 at 17:59.
Reply With Quote
  #11  
Old 22.11.2021, 12:17
Dack Rambo's Avatar
Forum Legend
 
Join Date: Mar 2010
Location: Switzerland
Posts: 2,983
Groaned at 196 Times in 120 Posts
Thanked 1,941 Times in 958 Posts
Dack Rambo has an excellent reputationDack Rambo has an excellent reputationDack Rambo has an excellent reputationDack Rambo has an excellent reputation
Re: What's the cost of topping up 2nd pillar

Quote:
View Post

You won't be able to take that money out ever except
- moving out of CH permanently to country where CH has no agreement on (US is example but none-of-EU zone should make payout possible)
or
- becoming self employed
or
- purchase self occupied house in CH

That means you would not see that money ever again.

At retirement you can take decision to pay out part/full or none at all.
If you move to an EU country you can use your second pillar to buy a self occupied property.
Reply With Quote
The following 2 users would like to thank Dack Rambo for this useful post:
  #12  
Old 22.11.2021, 19:49
Forum Veteran
 
Join Date: Jul 2013
Location: Olten
Posts: 633
Groaned at 67 Times in 54 Posts
Thanked 500 Times in 295 Posts
hoover1 is considered knowledgeablehoover1 is considered knowledgeablehoover1 is considered knowledgeable
Re: What's the cost of topping up 2nd pillar

Quote:
View Post
That's a whole new dimension to the topic. So I am allowed to purchase a property in SZ and live wherever I wish but always be taxed in SZ as that would remain my primary residence forever? That'd be nice! Perhaps that explains the flats/rooms to let in ZG/SZ with the fine print saying you cannot register as living there at the commune
No, you'd be called to return 2A back to the found management should you deregister from the real estate - that's what it is .


Now most banks also put a small print in the contract that should you change purpose of the real estate (from primary residence to rental or else) - contract can be terminated by the bank with immediate effect - 2A is paid by bank back to the found and you own full amount to the bank that very moment .

I do still have 20-years old framework contract with my bank - as neither is there - but saw different offers and didn't like above ones - even so I did not take 2A , it's my house and nobody's business what I do with it - however it's not what banks often think.
Reply With Quote
This user would like to thank hoover1 for this useful post:
  #13  
Old 22.11.2021, 19:53
Forum Veteran
 
Join Date: Jul 2013
Location: Olten
Posts: 633
Groaned at 67 Times in 54 Posts
Thanked 500 Times in 295 Posts
hoover1 is considered knowledgeablehoover1 is considered knowledgeablehoover1 is considered knowledgeable
Re: What's the cost of topping up 2nd pillar

Quote:
View Post
If you move to an EU country you can use your second pillar to buy a self occupied property.
It's interesting - I read about it some time ago however believed it was for cross-border - apparently I was wrong.
Reply With Quote
  #14  
Old 22.11.2021, 23:19
Senior Member
 
Join Date: Oct 2020
Location: Vaud
Posts: 287
Groaned at 18 Times in 12 Posts
Thanked 119 Times in 83 Posts
Gravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputation
Re: What's the cost of topping up 2nd pillar

Quote:
View Post
No, you'd be called to return 2A back to the found management should you deregister from the real estate - that's what it is

Sure, I meant not to deregister, just keep it and keep my registration at that commune. If they'd ask, I'd say my current "real" residence is just temporary for work purpose.

But thanks anyway for all the input. I'm really in doubts if it's worth all the hassle to save few bucks. If it was the way that one would just have to re-do the taxes and return what was saved on tax from voluntary 2A payments than that would be still worth the trouble. However if all the money returns to 2A to stick there frozen till retirement, that's subpar, seems risky and too restrictive.
Reply With Quote
  #15  
Old 23.11.2021, 00:10
FunnyBone's Avatar
Forum Veteran
 
Join Date: Jan 2015
Location: Earth
Posts: 861
Groaned at 40 Times in 27 Posts
Thanked 1,258 Times in 550 Posts
FunnyBone has a reputation beyond reputeFunnyBone has a reputation beyond reputeFunnyBone has a reputation beyond reputeFunnyBone has a reputation beyond reputeFunnyBone has a reputation beyond reputeFunnyBone has a reputation beyond repute
Re: What's the cost of topping up 2nd pillar

Quote:
View Post
Sure, I meant not to deregister, just keep it and keep my registration at that commune. If they'd ask, I'd say my current "real" residence is just temporary for work purpose.
One's real residency is determined by the number of days of the year spent at the residency in question.

As for the pillar 2, maybe already mentioned, yes, it can be taken out, but it will be counted toward your income in the year you take the money out, and taxed accordingly.
Reply With Quote
  #16  
Old 23.11.2021, 09:32
Senior Member
 
Join Date: Oct 2020
Location: Vaud
Posts: 287
Groaned at 18 Times in 12 Posts
Thanked 119 Times in 83 Posts
Gravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputationGravity has an excellent reputation
Re: What's the cost of topping up 2nd pillar

Quote:
View Post
One's real residency is determined by the number of days of the year spent at the residency in question.

As for the pillar 2, maybe already mentioned, yes, it can be taken out, but it will be counted toward your income in the year you take the money out, and taxed accordingly.

Firstly, to this side topic, I'm doing my taxes myself and I'm sure you can deduct some cost of Monday to Friday accommodation amongst professional expenses. Hence I think it could be possible to keep your primary residence whenever you decide

Secondly, withdrawal from 2A is taxed at a preferential rate. Its not counted towards your annual income only to wealth.
Reply With Quote
  #17  
Old 23.11.2021, 20:38
Member
 
Join Date: Mar 2010
Location: geneve
Posts: 184
Groaned at 0 Times in 0 Posts
Thanked 156 Times in 84 Posts
jim1 has a reputation beyond reputejim1 has a reputation beyond reputejim1 has a reputation beyond reputejim1 has a reputation beyond repute
Re: What's the cost of topping up 2nd pillar

My employer's 2 Pillar also pays ~1% and I don't top it up. My alternative option is to be invested in shares. After 6-7 years I expect to be better off assuming the long term historical return on shares and counting the withdrawal tax on 2P that some people forget about.

You don't want to put all your money in shares of course but in my case I have a high % of my savings in 2 Pillar. Keep in mind that as you get older the 2P contributions really increase steeply and you can end up with a lot of wealth earning low (but safe) returns

If I was likely to need a house deposit bigger than my current pension pot inside 7 years then I would have a different strategy

Anther factor to consider is that if you change jobs you are obliged to move your 2 Pillar to your new employer's scheme which may pay <1% (some pay 0.25%)


Quote:
View Post
Hence I think it could be possible to keep your primary residence whenever you decide
The tax authorities will make a judgement where you pay tax based on where your centre of life is. Factors include marital status and where partner lives, where any kids go to school, job locations, property(ies) you own and rent. There is no free lunch, they will probably not let you pay taxes in Schwyz if you own a small appartment there but work in another canton where you rent a huge villa
Reply With Quote
This user would like to thank jim1 for this useful post:
Reply




Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Topping up UK Pension to be eligible - anyone do this? MitzEclipse General off-topic 32 20.01.2016 13:51
RAV and part time work (i.e., topping up 80%) herzog Employment 6 25.03.2015 20:49
Topping up my Pillar 1 pension contributions. Garenaud Finance/banking/taxation 22 25.08.2013 17:01
Topping up my phone? WillEvans Daily life 9 21.03.2012 16:35
FYI: rents in Bahnhofstrasse now topping 10k/sqm rainer_d Business & entrepreneur 2 19.09.2010 15:57


All times are GMT +2. The time now is 02:39.


Powered by vBulletin® Version 3.8.4
Copyright ©2000 - 2021, Jelsoft Enterprises Ltd.
LinkBacks Enabled by vBSEO 3.1.0