When does a voluntary purchase into the pension fund make sense?

If you pay money into your pen­si­on fund volun­ta­ri­ly, you can save taxes. You can deduct the amount paid in from your tax­able inco­me. Against this back­ground, many pen­si­on funds adver­ti­se volun­ta­ry purcha­ses without any restric­tions and without pro­vi­ding trans­pa­rent infor­ma­ti­on about pos­si­ble dis­ad­van­ta­ges.

In this arti­cle we would like to make it bet­ter. We also put our fin­ger on the vul­nerable points, so that you can bet­ter judge whe­ther a volun­ta­ry purcha­se in the pen­si­on fund real­ly makes sen­se for you.*

*1e manage­ment pen­si­on plans or pure capi­tal plans (without pen­si­on opti­on) are not affec­ted by the redis­tri­bu­ti­on pro­blems descri­bed in the next sec­tion, as each insu­red per­son has his or her own account (1e plan) and no con­ver­si­on los­ses are incur­red due to the lack of pen­si­on opti­on (1e and capi­tal plans).

Second pillar is built on a sloping foundation

In order to be able to assess whe­ther volun­ta­ry purcha­se is appro­pria­te for you, you need to under­stand how the second pil­lar of the Swiss pen­si­on system is posi­tio­ned. Let’s face it: not well. Lower yiel­ds on the one hand and hig­her life expec­tancy on the other have meant that the reti­re­ment assets saved up to reti­re­ment are no lon­ger suf­fi­ci­ent to finan­ce pen­si­ons. The­re is a quiet redis­tri­bu­ti­on from the acti­ve insu­red to pen­sio­ners, which is pri­ma­ri­ly expres­sed as fol­lows: they no lon­ger recei­ve the full return as inte­rest. A part of the returns ear­ned by the pen­si­on fund on the capi­tal mar­kets is used to finan­ce the con­ver­si­on los­ses.

The cur­rent situa­ti­on would basi­cal­ly not be all that bad if a reform was on the hori­zon that got to the root of the pro­blems. But we are far from that. The last revi­si­on of the BVG dates back to 2004, and sin­ce then no bill has mana­ged to attract a majo­ri­ty. The most recent one was the 2020 age reform, which was voted down by the peop­le and the can­tons (Sep­tem­ber 24, 2017).

All in all, this leads to con­si­derable uncer­tain­ties. Without reform, pen­si­on funds will incre­a­singly run into coverage short­falls, espe­cial­ly if the stock mar­kets do not per­form well. If a pen­si­on fund finds its­elf in a defi­cit, it must take reme­di­al action. In the event of a par­ti­al liqui­da­ti­on, volun­ta­ry con­tri­bu­ti­ons are also affec­ted by the und­er­fun­ding and are no lon­ger repaid in full. Sce­n­a­ri­os that you do not want to expe­ri­ence first hand*.

*1e-Kader­vor­sor­ge­plä­ne oder rei­ne Kapi­tal­plä­ne (ohne Ren­ten­be­zugs­mög­lich­keit) sind nicht von den in die­sem Kapi­tel beschrie­be­nen Umver­tei­lungs­pro­ble­men betrof­fen, da für jeden Ver­si­cher­ten ein eige­nes Kon­to geführt (1e-Plan) wird und man­gels Ren­ten­op­ti­on kei­ne Umwand­lungs­ver­lu­ste erlit­ten wer­den (1e- und Kapi­tal­plä­ne).

How can you still benefit from a pension fund purchase?

Obligation before supplementary obligation

Sin­ce we have both a mini­mum inte­rest* on the reti­re­ment capi­tal and the mini­mum pen­si­on con­ver­si­on rate in the Obli­ga­ti­on Pen­si­on Plan, it is advi­s­able to first clo­se any gaps in the Obli­ga­ti­on Pen­si­on Plan befo­re you pay into the Sup­ple­men­ta­ry Obli­ga­ti­on Pen­si­on Plan. This is pri­ma­ri­ly pos­si­ble if you have insu­red the Obli­ga­ti­on and sup­ple­men­ta­ry Obli­ga­ti­on insuran­ce in two dif­fe­rent funds. Howe­ver, you should still ask your pen­si­on fund whe­ther it is pos­si­ble to buy into the Obli­ga­ti­on insuran­ce.

If it is not pos­si­ble to pay into the obli­ga­ti­on or if you only have purcha­sing poten­ti­al in the sup­ple­men­ta­ry obli­ga­ti­on, the que­sti­on ari­ses as to how solid your pen­si­on fund is. If the coverage ratio is well over 100 per­cent, this is a good sign. If it is clo­se to or even below 100 per­cent, purcha­ses are not very attrac­ti­ve. You have to expect that the bene­fits in the sup­ple­men­ta­ry obli­ga­ti­on will be fur­ther redu­ced in the future to finan­ce the con­ver­si­on los­ses in the BVG Obli­ga­ti­on.

* In the event of rest­ruc­tu­ring, the mini­mum inte­rest rate is no lon­ger gua­ran­te­ed. If the usu­al mea­su­res to rest­ruc­tu­re a pen­si­on fund do not suf­fice, the inte­rest rate can also be redu­ced in the BVG Obli­ga­ti­on for a maxi­mum of 5 years by a maxi­mum of 0.5 per­cen­ta­ge points below the thres­hold of the BVG mini­mum inte­rest rate.

Choosing the right time

For pension funds with a low coverage ratio: better late than early

If you want to take advan­ta­ge of the exi­sting purcha­sing poten­ti­al despi­te a low level of coverage in the sup­ple­men­ta­ry obli­ga­ti­on, it is advi­s­able to do this as late as pos­si­ble. Con­ver­si­on rates can­not be signi­fi­cant­ly redu­ced over­night. In other words, over a short peri­od of time you can assess the risks of bene­fit reduc­tions bet­ter than in the long term. You can make purcha­ses up to three years befo­re reti­re­ment if a capi­tal with­dra­wal is plan­ned. If you are not plan­ning a lump-sum with­dra­wal, you can buy in until reti­re­ment.

For pension funds with a high coverage ratio: also interesting at an early stage

If you are likely to have the same pen­si­on fund with an excep­tio­nal­ly good coverage ratio until reti­re­ment, or if it is a lump-sum plan or 1e plan, it may be worth buy­ing in ear­lier. Why? First­ly, your reti­re­ment assets bene­fit from the com­po­und inte­rest effect. Of cour­se, your pri­va­te assets also bene­fit from this. The main dif­fe­rence, howe­ver, is that you do not pay inco­me tax on the inte­rest and divi­dend inco­me in the pen­si­on plan. In addi­ti­on, the reti­re­ment assets are not sub­ject to wealth tax until reti­re­ment or an ear­ly with­dra­wal (does not have to be decla­red in your tax return).

Objective: Breaking income peaks

From a tax point of view, volun­ta­ry purcha­ses are most inte­re­sting in the years in which you earn the most. This is when you have to pay the most taxes, not only in francs and cen­ti­mes but also in per­cen­ta­ge terms. If your inco­me is at a low level of pro­gres­si­on, the volun­ta­ry purcha­se will be less worthwhile.

Your goal should be to break inco­me peaks with volun­ta­ry purcha­ses and thus smooth annu­al tax­able inco­me (see dia­gram).

Glättung Einkommen durch freiwillige Einkäufe
Smoot­hing of tax­able inco­me through volun­ta­ry purcha­ses into the pen­si­on fund

Spouses should choose the better pension fund for purchases

Spou­ses who are both working have an addi­tio­nal oppor­tu­ni­ty to opti­mi­ze pen­si­on fund purcha­ses: Sin­ce your inco­mes are added up in your tax return, you can com­pa­re your pen­si­on funds and pre­fer the pen­si­on fund that is finan­cial­ly bet­ter off and offers bet­ter bene­fits. You are also pro­tec­ted in the event of a divor­ce. The reti­re­ment assets accu­mu­la­ted during the mar­ria­ge are divi­ded in half, regard­less of your matri­mo­ni­al pro­per­ty regime.*

*Excep­ti­on: Purcha­ses by means of funds that belon­ged to the “Errun­gen­schafts­be­tei­li­gung”, pro­vi­ded that the “Eigen­gut” can be pro­ven.

Restitution of retirement assets in case of death?

Befo­re you defi­ni­te­ly make the purcha­se, one final note: check whe­ther your pen­si­on fund offers a resti­tu­ti­on of the reti­re­ment assets and volun­ta­ry purcha­ses. If it does not offer a resti­tu­ti­on, you must be awa­re that volun­ta­ry purcha­ses are lost if you die befo­re reti­re­ment. This is becau­se the reti­re­ment capi­tal (inclu­ding volun­ta­ry purcha­ses) is then used to finan­ce the widow’s and orphan’s pen­si­on. As a rule, the­se pen­si­ons are not impro­ved by volun­ta­ry purcha­ses (often a fixed per­cen­ta­ge of the last insu­red sala­ry and not in rela­ti­on to the reti­re­ment capi­tal).

*The 1e collec­ti­ve foun­da­ti­on estab­lished by fin­pen­si­on your­pen­si­on gene­ral­ly offers a full resti­tu­ti­on on the saved reti­re­ment assets (in addi­ti­on to any pen­si­ons).

Alternatives to voluntary purchase

Free assets: pillar 3b

Final­ly, the ans­wer to the que­sti­on of whe­ther it makes sen­se to buy into the pen­si­on fund depends on your alter­na­ti­ves. What else do you do with the money? If you don’t invest it and pos­si­b­ly even pay nega­ti­ve inte­rest, it is more worthwhile buy­ing into the pen­si­on fund than if you know how to invest the money pri­va­te­ly for high returns. In the Pen­si­on Fund Obli­ga­ti­on, you have a cer­tain amount of capi­tal pro­tec­tion, sin­ce the mini­mum inte­rest rate may not nor­mal­ly be under­cut and a mini­mum with­dra­wal bene­fit is gua­ran­te­ed. In addi­ti­on, pen­si­on assets and their inco­me are exempt from both inco­me and wealth tax.

Private provision: pillar 3a

As an alter­na­ti­ve to buy­ing into a pen­si­on fund, the 3rd pil­lar is a good choice. If both spou­ses are gain­ful­ly employ­ed and are mem­bers of a pen­si­on fund, both can pay in the annu­al maxi­mum amount of the pil­lar 3a and deduct it from their joint tax­able inco­me.

Management pension plans: 1e plans

1e plans are an attrac­ti­ve alter­na­ti­ve for a second pil­lar pen­si­on solu­ti­on without redis­tri­bu­ti­on. In 1e plans with an inco­me of CHF 127’980 or more, a sepa­ra­te account is mana­ged for each insu­red per­son. Redis­tri­bu­ti­on can be avoided.

Advantages and disadvantages summarized

Advantages:

  • Reduc­tion of the top tax bur­den on high inco­mes.
  • Tax deduc­tion at the time of depo­sit is usual­ly hig­her than the capi­tal with­dra­wal tax. Capi­tal with­dra­wal tax is a redu­ced tax.
  • You pay no wealth tax on pen­si­on assets
  • Inco­me from pen­si­on assets is not tax­able as inco­me.
  • A cer­tain amount of capi­tal pro­tec­tion and a mini­mum inte­rest rate in the BVG obli­ga­ti­on.

Disadvantages:

  • Assets are tied up and can only be with­drawn befo­re reti­re­ment in a few excep­ti­ons (home ownership, self-employ­ment, emi­gra­ti­on).
  • Lower inte­rest rate and lower con­ver­si­on rate in the sup­ple­men­ta­ry obli­ga­ti­on (key­word: redis­tri­bu­ti­on).
  • Pos­si­b­ly no resti­tu­ti­on of the reti­re­ment assets (inclu­ding volun­ta­ry purcha­ses) in the event of death.
  • You pay a redu­ced tax when you with­draw your pen­si­on assets.

writ­ten on 08.10.2019


Cur­r­ent­ly, fin­pen­si­on offers solu­ti­ons for vested bene­fit savings with secu­ri­ties and indi­vi­du­al manage­ment pen­si­on plans 1e. A 3a secu­ri­ties app is under deve­lo­p­ment.