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Old 06.01.2010, 20:45
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Business community calls for reduced pensions

Business community calls for reduced pensions

The business community and employers say pension payments must be reduced as a result of an ageing population and lower capital gains on pension funds.

Voters will have the final say in March on the proposal to lower the minimum percentage rate used to calculate payments of the occupational pension scheme by about 0.6 per cent within six years.


The reduction of the conversion rate is a necessary step to ensure the future of the pension scheme for the younger generation, according to Gerold Bührer, president of the Swiss Business Federation.

He criticised trade unions, which have forced a referendum on the issue, of running an unfair campaign by blaming the business community for trying to deprive contributors to the pension scheme of their financial share.

For his part, Rudolf Stämpfli of the Employers Association warned that failure to adapt the conversion rate would force pension funds to make riskier investments to secure the financial stability of the insurance scheme.

Trade unions, consumer groups and centre-left parties have challenged the reform to a nationwide vote on March 7. They say a reduced rate is unacceptable and accused private insurance companies of seeking to benefit at the expense of individuals.

However, the government as well as the main centre-right and rightwing parties have come out in favour of the reform.

The occupational pension scheme is part of Switzerland’s three-tier retirement funding system, along with the state old age pension and private saving schemes.

The conversion rate presently is 7.05 per cent for men and 7.0 per cent for women. The reduction – the second within four years – would come into force gradually by 2016.
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Could someone knowledgeable out there please explain what this means for the average salaried employee?

What is meant by the "conversion rate"?

If an employee has been paying into a Tier 2 pension (alongside their employer's contributions), with a target pension of 60% of "insured salary", will this proposal affect the retirement pension that will ultimately be paid? Will it affect the payments that the employer and/or employee make into the Tier 2 pension?

Retirement is a long way off, but ...
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Old 07.01.2010, 21:05
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Re: Business community calls for reduced pensions

Your annual pension would be the "conversion rate" multiplied by the capital saved in the pension.

For example, Assume you have CHF 100k saved in your pension plan at retirement (now 65 for men, 64 for women). Then if the conversion rate is 7%, your annual pension would be CHF 7k.
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Old 07.01.2010, 23:41
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Re: Business community calls for reduced pensions

Hmmmm. So it makes sense then to load up the pension fund in the final years of work, rather than pay in steadily each year?
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Old 08.01.2010, 01:05
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Re: Business community calls for reduced pensions

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Hmmmm. So it makes sense then to load up the pension fund in the final years of work, rather than pay in steadily each year?
yes but that is not allowed! it is at the discretion your cantonal tax authority how much per year you can 'load up'. I think its about 5--7% max of your annual salary. otherwise you could 'overload' and actually reduce your overall tax liability to a negative number i.e. they would owe you money!

that's not gonna happen (c;
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Old 08.01.2010, 14:50
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Re: Business community calls for reduced pensions

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yes but that is not allowed! it is at the discretion your cantonal tax authority how much per year you can 'load up'. I think its about 5--7% max of your annual salary. otherwise you could 'overload' and actually reduce your overall tax liability to a negative number i.e. they would owe you money!

that's not gonna happen (c;
Disagree with above statement!

You can make extraordinary contribution(s) if there is a deficit in the pension plan. The PP administrator can tell you how big the deficit is.

Next question: is the PP contribution tax deductible? Generally yes. The tax officer may be unhappy and refuse if you redeem soon after you pay it in.
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Old 08.01.2010, 14:56
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Re: Business community calls for reduced pensions

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Disagree with above statement!

You can make extraordinary contribution(s) if there is a deficit in the pension plan. The PP administrator can tell you how big the deficit is.

Next question: is the PP contribution tax deductible? Generally yes. The tax officer may be unhappy and refuse if you redeem soon after you pay it in.
Yes, but if your deficit is so big that by "loading it up" in a single tax year would result in a negative tax liability, I don't think that would be allowed...
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Old 08.01.2010, 15:09
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Re: Business community calls for reduced pensions

Thanks, Goldtop, that's my understanding too.

For those who are wondering about this: To generate the maximum Tier 2 pension upon retirement, employees and their employers need to pay annual contributions to their pension fund from age 25. Since most expats here wouldn't have been contributing to their Swiss pension from age 25, many will have a Tier 2 pension gap. They are permitted to make voluntary contributions to fill this gap, which I understand to be tax deductible. In the first five years, the amount of the total voluntary contributions each year is limited to a certain amount (although it's still very sizeable -- it can be tens of thousands of CHF per annum).

This represents a substantial opportunity to reduce taxable income and therefore to save on tax.
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Old 08.01.2010, 16:37
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Re: Business community calls for reduced pensions

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Yes, but if your deficit is so big that by "loading it up" in a single tax year would result in a negative tax liability, I don't think that would be allowed...
The Swiss tax rates are parabolic. Hence, it is more tax effective to spread the deductions over several years.
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Old 08.01.2010, 16:38
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Re: Business community calls for reduced pensions

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Thanks, Goldtop, that's my understanding too.

For those who are wondering about this: To generate the maximum Tier 2 pension upon retirement, employees and their employers need to pay annual contributions to their pension fund from age 25. Since most expats here wouldn't have been contributing to their Swiss pension from age 25, many will have a Tier 2 pension gap. They are permitted to make voluntary contributions to fill this gap, which I understand to be tax deductible. In the first five years, the amount of the total voluntary contributions each year is limited to a certain amount (although it's still very sizeable -- it can be tens of thousands of CHF per annum).

This represents a substantial opportunity to reduce taxable income and therefore to save on tax.
Yes. Substantial tax savings are possible despite the taxation on withdrawal.
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Old 09.01.2010, 02:12
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Re: Business community calls for reduced pensions

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Yes. Substantial tax savings are possible despite the taxation on withdrawal.
Taxation on withdrawal depends on where you're resident at the time -- if I understand correctly. Of course, there's also the option of not withdrawing (drawing a pension instead).
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Old 09.01.2010, 02:31
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Re: Business community calls for reduced pensions

Just out of interest what is the logic of us paying for the already pensioned?

Would it not be better that everyone pays purely towards their own pension or am I missing something?
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Old 09.01.2010, 09:47
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Re: Business community calls for reduced pensions

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Taxation on withdrawal depends on where you're resident at the time -- if I understand correctly. Of course, there's also the option of not withdrawing (drawing a pension instead).
Pensions are taxed, too! Maybe cheaper to take cash and invest the after-tax amount in tax-free schemes.
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Old 09.01.2010, 09:48
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Re: Business community calls for reduced pensions

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Just out of interest what is the logic of us paying for the already pensioned?

Would it not be better that everyone pays purely towards their own pension or am I missing something?
This depends on how your pension plan is structured.
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