The pension fund supplements the 1st pillar and helps to maintain your standard of living in old age or in the event of disability or death. With a voluntary purchase you can increase your retirement savings and reduce your taxable income, as the deposits are tax-deductible. Please bear in mind, however, that taxes will be due on the subsequent payout.
We’ll show you what you should bear in mind when making a pension fund purchase, what restrictions there are, and in which situations it is particularly worthwhile.
What is a pension fund purchase?
In addition to the mandatory contributions paid jointly by employers and employees, employees can also make voluntary contributions to the pension fund. These purchases help to close any gaps in coverage and increase your subsequent pension. Such gaps are often caused by breaks in employment, such as parental leave, studies, a sabbatical or unemployment – but also by a reduced level of employment.
What are the advantages of making a purchase in the 2nd pillar?
A voluntary pension fund purchase can have several advantages:
- Higher pension or lump sum: Your retirement savings increase, thus increasing the subsequent pension or lump-sum payment.
- Facilitate early retirement: A purchase helps to better plan early retirement from a financial perspective.
- Save on taxes: The sums paid in are tax-deductible and reduce your taxable income.
- Protection against risks: Purchases can improve disability and survivors’ benefits.
Tip
It is generally a good idea to spread the payments over several years. This is because the deposits can then be deducted from your taxable income every year and thus save more taxes over the years.
What needs to be considered when making a pension fund purchase?
As with pillar 3a, there are also a few things to consider when making a pension fund purchase:
- Check the maximum purchase potential: Your current pension certificate shows the maximum amount you can pay in.
- Observe the blocking period of three years: Voluntary pension fund purchases are subject to a three-year blocking period. While you can withdraw the paid-in capital during this period, the deduction from income tax will not be accepted retrospectively and any “saved” taxes will become due again. So if you are planning to retire with a lump-sum payment or an early withdrawal for home ownership during this period, you should not make a voluntary purchase.
- Residential property takes priority: If you have withdrawn funds from your pension fund to purchase residential property, you must first repay them before voluntary purchases are possible.
- Limit deposits: Each purchase triggers a separate tax certificate. In order to keep administrative costs low and reduce any possible fees, one voluntary purchase per year is generally sufficient.
- Clarify estate planning: Clarify what will happen to the amounts paid in if you should die. If there are no entitled survivors, the entire retirement savings may remain in the pension fund. As a rule, spouses receive survivors’ benefits, while life partners are subject to different rules, depending on the pension fund. However, purchases do not automatically increase the survivors’ benefits.
- Note the vested benefits account: If you have vested benefits, are self-employed, or have just moved to Switzerland, special rules apply. Seeking advice on pensions may be a good idea in these cases.
Tip
Plan the purchase carefully – especially with regard to taxes, retirement plans and possible restrictions
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Is a voluntary purchase in the 2nd pillar worthwhile?
A voluntary purchase in the pension fund can make sense particularly in the following situations:• Part-time work: Lower pension fund contributions often lead to gaps in coverage.
- Breaks in employment: After studying, parental leave, unemployment or an extended stay abroad, a purchase can make up for any missing contributions.
- Late entry to the pension fund: People who only joined after the age of 25 have often accumulated fewer retirement savings.
- Salary increase: A major increase in salary can cause a contribution gap which can be closed by making a purchase.
- Change of pension fund: A new pension fund with better benefits can make a purchase more attractive.
- Close pension gaps: A purchase serves to increase your retirement savings and improve your retirement pension.
- Planning early retirement: If you want to retire earlier, you can reduce your financial losses by making purchases.
- Divorce: Following a divorce, a purchase can help to rebalance the split pension plan savings.
Example: You now earn CHF 90 000 a year but previously had a lower salary. Your pension fund calculates your retirement savings as if you had always received this higher salary. This creates a contribution gap that you can close with a purchase. The same applies if you temporarily worked part-time or took a career break.
Taxes are due on withdrawal
Taxes fall due when you withdraw your pension fund capital. Lump-sum payments are taxed at a reduced rate, separately from your other income (lump-sum payout tax). If you opt for a pension, it will be taxed like normal income at the regular income tax rate.
Frequently asked questions
Your pension certificate shows your maximum purchasing potential.
The money remains tied up and can only be withdrawn under certain conditions.
Deposits are tax-deductible and reduce your taxable income.
Pillar 3a is more flexible, while the pension fund offers higher annuity benefits.
Yes, a tax-privileged lump-sum withdrawal is only possible after three years.
By means of a salary increase or an adjustment to your pension plan.
Depending on the pension fund regulations, it may be paid to survivors.
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Request a consultation now free of charge and without obligation.
