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Old 15.10.2010, 13:39
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Pay into 2nd pillar -- benefits/downsides?

Hi,

I've moved to Switzerland about a year ago, and noticed that on the 'fonds de prévoyance' letter that I received, is stated that a 'rachat' is possible of up to 30K.

Since the 2nd pillar system is not 100% clear to me (though I read the other posts on this), I still have some questions...

Does this 'rachat' indicate the maximum amount I can pay into the 2nd pillar this year, on top of what has already been deducted from my salary? Does it make sense that I pay into this? How much tax would I be able to deduct from this?

If I choose not to (or only partially; e.g. 10K), I presume I can still buy into next year (but then only for 20K?, or does it augment since I earn more than 80K?)

Any downsides? E.g., when I would move back to Belgium, or have some kind of 'accident'...
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Old 15.10.2010, 15:14
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Re: Pay into 2nd pillar -- benefits/downsides?

What you are probbaly seeing the opportunity to "purchase missing years". The concept is that when you pay into a pension, they calculate what the pension pot should be, if you had been paying in since, I think, age 26, according to your current salary, age etc. The difference between this figure and what is in your pension is, in principle, allowed to be "purchased" by you now, to fill the gap.

There is a restriction of, I think 20% annual income, on the amount you can purchase per year, for those who arrived in Switzerland after 01-Jan-2006. I don't know the French terminology you mention, but this figure of 30k will either be the total gap, or the amount you can repay this year, based on that 20% restriction - you will be able to work it out, as you know your salary.

If you don't "purchase" any this year, the gap will remain and you can fill it in following years. It can be useful to do this gap filling in years in which you have higher earnings, as the contribution you make will reduce your higher marginal tax rates.
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Old 15.10.2010, 15:18
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Re: Pay into 2nd pillar -- benefits/downsides?

This is the benefit of "paying in" for the missing years: the amount you pay in to back-fill your pension is tax deductable. You can save quite a bit of tax doing that. If it were any other country than Switzerland I would hesitate to trust the pension fund, but it's about as safe as it can be here.
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Old 15.10.2010, 16:33
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Re: Pay into 2nd pillar -- benefits/downsides?

Firstly I believe very much the pensions are very good, and you should not be concerned about your money.

Anways, this is what I have learned with the pensions.

1st pillar - Standard like in every western country. Whatever you put into the first pension, you can not take out when you leave the country. The goverment will provide your 1st pension once you have retired. The goverment will decide what you will get.

2nd pillar - This pillar you put X% of your salary in per year. You are able to take this money, once you leave the country but you will be taxed for it. Also, when leaving the country you can put this money into a special bank account (in UBS, Post,...) and you can then leave it in this account or transfer it to your foreign account.

Now the 2nd pension you will receive will be decided by the government. Now here is the kicker. If you notice as you get older and work in Switzerland, you start to pay more into the second pensions. By the time you reach your 60s you start to put in 20% of your salary. So based on this, what you receive in the second pension will be heavily based on your hours and salary in your later years. Your earlier years have less impact on your pension than your later years.

Also if your very well off, there is a maximum second pension you can receive once you retire. I think it is around 88000CHF. And if you are married, then the maximum for the BOTH of you can receive is around 120000 CHF per year. It is a lot of money, but still if you are making 300,000 per year, maybe the second pension isn't that great. (I am not in this situation).

3rd pillar - Is a pillar you can control. This is the one I recommend to you. You are able to put a maximum of 6700 (approximately per year). This is a tax deductible and will save you a lot. (I save about a grand doing this, I should of done this earlier). This is your money which sits in a 3rd pillar bank account. You can also use this money in purchasing a house (I don't know all the details on this).

Anyways.

TL;DR; Choose the 3rd pillar and not the 2nd pillar.
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Old 15.10.2010, 16:39
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Re: Pay into 2nd pillar -- benefits/downsides?

You can also cash out your 2nd pillar at anytime to buy a primary residence. We just did that last year.

Advise: do both 2nd and 3rd. If not enough, I would also say do 3rd first.
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Old 15.10.2010, 16:42
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Re: Pay into 2nd pillar -- benefits/downsides?

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Choose the 3rd pillar and not the 2nd pillar.
Unless you are "unfortunate" enough to have a US passport.
http://www.aca.ch/joomla/images/pdfs/agefi8.pdf
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Old 15.10.2010, 16:47
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Re: Pay into 2nd pillar -- benefits/downsides?

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Firstly I believe very much the pensions are very good, and you should not be concerned about your money.

Anways, this is what I have learned with the pensions.

1st pillar - Standard like in every western country. Whatever you put into the first pension, you can not take out when you leave the country. The goverment will provide your 1st pension once you have retired. The goverment will decide what you will get.

2nd pillar - This pillar you put X% of your salary in per year. You are able to take this money, once you leave the country but you will be taxed for it. Also, when leaving the country you can put this money into a special bank account (in UBS, Post,...) and you can then leave it in this account or transfer it to your foreign account.

Now the 2nd pension you will receive will be decided by the government. Now here is the kicker. If you notice as you get older and work in Switzerland, you start to pay more into the second pensions. By the time you reach your 60s you start to put in 20% of your salary. So based on this, what you receive in the second pension will be heavily based on your hours and salary in your later years. Your earlier years have less impact on your pension than your later years.

Also if your very well off, there is a maximum second pension you can receive once you retire. I think it is around 88000CHF. And if you are married, then the maximum for the BOTH of you can receive is around 120000 CHF per year. It is a lot of money, but still if you are making 300,000 per year, maybe the second pension isn't that great. (I am not in this situation).

3rd pillar - Is a pillar you can control. This is the one I recommend to you. You are able to put a maximum of 6700 (approximately per year). This is a tax deductible and will save you a lot. (I save about a grand doing this, I should of done this earlier). This is your money which sits in a 3rd pillar bank account. You can also use this money in purchasing a house (I don't know all the details on this).

Anyways.

TL;DR; Choose the 3rd pillar and not the 2nd pillar.
Are you sure about the second pillar? I thought the only thing the government set was the minimum contribution level by the employer and employee or combination thereof. Are you sure that the maximum is 88k/120k. My pension calculator at work (one of the big banks, so they know their onions) doesn't ask any questions about marital status and has my pensionable salary projected to be well above either of those numbers you have mentioned.

To the OP if you want the full benefit of your 2nd pillar when you retire (assuming you are planning on staying in Switzerland forever of course), then it makes sense to plug any pensions gap sooner rather than later, because due to the miracle of compound interest any unplugged gap will just get bigger and bigger.
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Old 15.10.2010, 16:58
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Re: Pay into 2nd pillar -- benefits/downsides?

I assume one can also take the money out of 3rd Pillar/Pension when he/she leaves Switzerland permanently ?

I wanted to verify the information regarding following situation:

I have heard that there is some kind of bilateral agreement between Switzerland and several countries regarding 2nd and 3rd pillar pension funds.

Situation: Your home country has a bilateral agreement with Switzerland and you move back to your home country permanently.

Bilateral Agreement: You can not cash out money from your pension funds when you leave Switzerland. You must transfer money from your pension fund in Switzerland to one of the pension funds in your home country.

Could anybody please confirm if the above is correct ?

Appreciate your comments/feedback
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Old 15.10.2010, 16:59
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Re: Pay into 2nd pillar -- benefits/downsides?

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Are you sure about the second pillar? I thought the only thing the government set was the minimum contribution level by the employer and employee or combination thereof. Are you sure that the maximum is 88k/120k.
We had a meeting discussing pensions at our office, a guy from Credit Suisse did the meeting. And according to the meeting we were told there is a maximum for the second pension. When I get home, I will take a search on the internet, and see if I can find something.
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Old 15.10.2010, 17:23
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Re: Pay into 2nd pillar -- benefits/downsides?

As some have already mentioned, the rachat can only cover years of pensionable service so the amount will not go up annually.

Depending on your employers pension plan it may be possible to make additional contribution above the minimum amount.

Also your HR dept. should be able to provide you with the coverage ration of the companies current pension fund. This is required to be assesed periodically by an actuarial expert. This ratio will tell you where your fund currently stands in relation to its obligations.

For full information on the law regarding the 2nd pillar read the LPP\BVG

There are minimum and maximum amounts of contributions. To go beyond the Maximum you would been to invest a 3rd pillar.

Bob
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Old 18.10.2010, 15:13
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Re: Pay into 2nd pillar -- benefits/downsides?

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Are you sure about the second pillar? I thought the only thing the government set was the minimum contribution level by the employer and employee or combination thereof. Are you sure that the maximum is 88k/120k. My pension calculator at work (one of the big banks, so they know their onions) doesn't ask any questions about marital status and has my pensionable salary projected to be well above either of those numbers you have mentioned.
Been scouring the net, to find this information. Here is a link to an older document. See page 4. (Swisslife) It is a couple of years old, but I think it has the best explanation.

>The aim of future provisions – to provide pensions from
>your first and second pillar savings which together amount
>to 60% of your income when in employment – is difficult to
>achieve, especially if you are higher up on the salary scale

If you do a search for BVG maximum, the maximum for BVG is
CHF 82'080
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Old 18.10.2010, 15:36
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Re: Pay into 2nd pillar -- benefits/downsides?

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You can also cash out your 2nd pillar at anytime to buy a primary residence. We just did that last year.

Advise: do both 2nd and 3rd. If not enough, I would also say do 3rd first.
Erm, no. We are discussing the same topics and as soon as you put cash into your fund for "missing years" you have a three year waiting period till you can cash out for real estate. Not sure if this is generally true - it seems to me, but I do not know - at least it is the case with our fund.
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Old 18.10.2010, 15:38
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Re: Pay into 2nd pillar -- benefits/downsides?

That CHF 82,080 you quote is the upper threshold for compulsory insurance. I think this means that salary earned above this level does not have to be insured under the BVG scheme. There is also a (coordination) deduction to this amount to obtain what's called the coordinated salary...i'm vague on the details, but I think it means on a 82,080 salary, the coordination deduction (23,940) means you actually only have to insure a max. 58,140.

As noted above, this is the max salary that you have to insure - it does not define the max value of your pension. If you earn in excess of this figure, you can (depending on your pension scheme) insure 'extra-mandatory' benefits.
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Old 18.10.2010, 15:44
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Re: Pay into 2nd pillar -- benefits/downsides?

Re: three year waiting period.

I think that is the case, and even if not (enforced) - be careful of trying to cycle earnings through the pension with the aim of withdrawing straightaway/soon. This can be deemed 'tax avoidance' and although you will not get into trouble legally, I believe the tax man can levy surcharges in lieu of previous tax reliefs.

May be particularly of note for those planning to leave CH (for non-EU shores) and take their pension pot straightaway. Note sure whether it applies equally to Pillar 2 and 3 - I discussed cashing in Pillar 3 (incl. previous years contribution) to use as a mortgage deposit and no-one mentioned such issues - indeed I have the impression it's quite allowed to cash in Pillar 3 for this purpose and re-invest in a new one - there is a thread somewhere where Richard explained more.
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Old 28.01.2011, 13:05
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Re: Pay into 2nd pillar -- benefits/downsides?

After having used the maximum amount (6.5k) into the 3rd Pillar, is paying more (than the minumum) into second pillar pension (BVG) generally considered the next best way of long term pension provision, or are there other schemes that are generally considered preferable.

I know of course everything is a balance of risk and reward, and this is for 20years+ to retirement, and assuming not moving away from CH. I am not after exact recommendatios as there is little to go on but just general perceptions and risks. One of my concerns is the goalposts being moved in terms of return etc with an ageing population etc compared to a simple investment.

I wonder because I hear little about people paying in more than the minimum.
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Old 28.01.2011, 13:16
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Re: Pay into 2nd pillar -- benefits/downsides?

I guess the 3rd pillar contributions of chf 6566 p.a. are a good starting point for beefing up your investment/retirement plan.
Havent tried the 2nd pillar as yet, looks a bit complicated to me...
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Old 28.01.2011, 13:43
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Re: Pay into 2nd pillar -- benefits/downsides?

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I guess the 3rd pillar contributions of chf 6566 p.a. are a good starting point for beefing up your investment/retirement plan.
Havent tried the 2nd pillar as yet, looks a bit complicated to me...

year 2011 the max contribution is 6'682 CHF
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Old 28.01.2011, 13:56
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Re: Pay into 2nd pillar -- benefits/downsides?

My question (as the thread) was about the 2nd Pillar (BVG). The SFr 6682 limit is for the 3rd pillar, which I've used. But am after advice on whether beefing up the 2nd is a good next step.
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Old 28.01.2011, 14:00
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Re: Pay into 2nd pillar -- benefits/downsides?

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After having used the maximum amount (6.5k) into the 3rd Pillar, is paying more (than the minumum) into second pillar pension (BVG) generally considered the next best way of long term pension provision, or are there other schemes that are generally considered preferable.

I know of course everything is a balance of risk and reward, and this is for 20years+ to retirement, and assuming not moving away from CH. I am not after exact recommendatios as there is little to go on but just general perceptions and risks. One of my concerns is the goalposts being moved in terms of return etc with an ageing population etc compared to a simple investment.

I wonder because I hear little about people paying in more than the minimum.
There are two things which sort of conflict:

Short term (today) tax benefits on saving
Long term (20-30-40-50 years) return on the investments made

(c;


1.) 3a is usually the first and to be allocated by people.

Quasi fixed (related to the SNB interest rates!) guaranteed compounded return on your investment, with a tax break today.

2.) Then I would check what additional contributions you can make to you 2nd pillar (company pension) You can usually get tax relief on a contribution of up to 6--7% of your salary, but any contribution should be confirmed with the local tax office first.

But the rate of return will very much depend on the policy you subscribe to. But the tax break today is usually worth it.

3.) Then maybe look at 1st pillar (state pension). This is more difficult and I think there is a time limit of 5 years after arriving in CH within which time you can top up the 1st pillar. Maybe even get a tax break on that too.

If you can achieve the maximum contribution you guarantee a maximum return of the state pension. Otherwise you are guaranteed to receive a proportion of the contribution paid.


At this point in any given year you have pretty much used up the tax breaks relating to pension planning and you have to evaluate the cost to you. Back on the open market to get the best deal: open another 3a (recommended IMO), more 2nd pillar contribution (if you can, though your tax office will need an explanation why) , a 'proper' life insurance policy, stocks/shares etc

swings and roundabouts at this point as the best rate of return (c;
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Old 28.01.2011, 14:05
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Re: Pay into 2nd pillar -- benefits/downsides?

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Back on the open market to get the best deal: open another 3a (recommended IMO), more 2nd pillar contribution (if you can, though your tax office will need an explanation why) , a 'proper' life insurance policy, stocks/shares etc
Interesting. Why would you recommend another 3a? I thought once you max out the CHF6k, that's it, so it can't be done anyway?
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