You can cut your tax bill by purchasing additional benefits in your pension fund – in other words, by making voluntary deposits. What do you have to bear in mind when doing so? What are the benefits? And is a purchase of additional pension benefits the right thing for you?
Perhaps you have a pillar 3a account and regularly pay a certain sum into your restricted pension scheme at the end of the year. This enables you to save for your retirement and reduce your tax bill. A purchase of additional pension benefits may also offer considerable savings potential. It makes a lot of sense for many pension savers.
What are the advantages of purchasing additional ?
On the one hand, purchasing additional benefits enables you to close pension gaps, allowing you to draw a higher pension. On the other, such purchases allow you to optimise your tax situation at the time the purchase is made, as the pension capital is exempt from wealth, income and withholding tax for the duration of the insurance cover. Your purchases can also be deducted from your taxable income. For this reason, it can make sense to stagger purchases over several years, thus ensuring that a lower rate of taxation is applied.
Purchases are normally made at the end of the year, as with pillar 3a. In the event of complex investment conditions, however, it can make sense to already make such purchases at the beginning of a year in order to take advantage of the interest rates paid by occupational pension schemes – these currently stand at 1.0 per cent.
What should you bear in mind when making a purchase?
- You are allowed to make voluntary purchases if there are gaps in your pension cover.
- The money you pay into your pillar 2 scheme remains there until you retire. No differentiation is made between voluntary purchases and mandatory contributions. The law allows for the withdrawal of a lump-sum amount prior to retirement age in the following cases: if you take on self-employment, wish to purchase owner-occupied residential property or permanently leave Switzerland.
- In the event of divorce or the dissolution of a registered partnership, the pension capital accumulated during the marriage/partnership is split – including the purchases if they were financed from shared assets.
- Any pillar 3a accounts must be taken into account if these originate from a period of self-employment.
- Should you have already withdrawn money from pillar 2 for , you must first pay this back before you can make additional purchases.
- A blocking period of three years is applied to any purchases that are made. This means that the benefits resulting from your purchases cannot be paid out as a lump sum during the blocking period. In general, lump-sum withdrawals within three years of purchases can have unpleasant tax consequences.
When is it advisable for you to make a purchase?
At any time. If you are gradually coming up for retirement, then it is high time to examine your future old-age benefits and purchase some additional pension benefits: the longer interest can be paid on the purchase of additional pension benefits, the greater the compound-interest effect and the resulting benefits. Michel Herzig, Executive Manager of Tellco pkPRO, has the following advice: “The earlier you make your purchases, the higher your pension will be, as the money in your pension fund will be working for you and increasing your pension.”
Purchases of additional pension benefits are particularly advisable:
- Upon first being admitted to the pension fund after turning 25 years of age
- After a salary increase, as this also increases your purchasing potential
- For self-employed people: it can be much more attractive from a tax perspective to pay out a high salary which then goes into your pension fund than to pay tax on your income or your company profit
- Upon a change to your pension plan’s savings contributions
- Upon switching to a new pension fund with higher savings contributions
- If you have missing insurance years (pension gaps), for example due to a stay abroad, a period of study, unemployment, a break from work or a divorce
- If you are planning to take early retirement
- To optimise your tax situation during high-income years
Before you make a purchase, it is worth checking how
. After all, the money from your purchase will remain there until you retire. It is not advisable to make purchases in pension funds that are underfunded, as any restructuring measures that are necessary will partly be borne by the policyholders. You should therefore take a very close look at your pension fund and pay attention to the ratio of active insured persons to pension beneficiaries. At Tellco pkPRO, for example, this ratio is excellent: “We have 25 active insured persons for every pension beneficiary,” Herzig reveals.
Purchases are a good way to improve your retirement provision. In other words: purchase a better pension for tomorrow, today. We will be happy to assist you.