How to use the Swiss pension system to maximise your future income and minimise your taxes
As you are probably aware by now the Pension System here in Switzerland is made up of three elements. These are known as the “Three Pillars”. So what are they?
First Pillar (State Pension) – This is the main element of the Swiss social security and consists of old-age insurance and survivors, more commonly known as AVS. It’s purpose is to cover the basic requirements of an individual post retirement.
Second Pillar (Employers Pension) – The occupational pension is compulsory for all individuals who are employed. It is funded by employers and employees, with the purpose of providing a retiree a comfortable income.
Third Pillar – (Personal Pension) – This element of the swiss pension system is completely optional. However, most residents here in Switzerland will choose to take full advantage of this as well as the first and second pillar will not generate enough income for them to live off come retirement.
Whether you are staying here in Switzerland for one year or ten it makes perfect sense to maximise your tax relief and save for your retirement while doing so. While the first two pillars are mandatory it also makes sense to contribute the maximum amount towards your third pillar each year as well.
So what can you do to maximise your tax relief each year?
In order to ensure you have maximised your tax relief you need to contribute the maximum amount in to your Second and Third pillar pensions. As most of our clients are expatriates we advise them to utilise their Third Pillar first as the Second Pillar is normally a much larger amount and some of our clients are reluctant to effectively lock this amount of capital away until retirement.
Maximising Your Third Pillar
So firstly you need to find a Third Pillar account that is suitable for you. There are many options available and it can get quite confusing and time consuming researching them all. It is important you seek advice beforehand to ensure you select the correct account for your current and future circumstances. For example, do you choose a bank, insurance company, an SMI linked account or one with a Guaranteed amount?
How Much Can You Contribute
The current cap on the Third Pillar A is 6,883.00 per annum. This amount is deductible from your income taxes and results in a rebate of approximately 2,000.00 Swiss Francs.
What If You Are Self Employed?
For your third pillar you are able to contribute up to 20% of your annual earned (taxable) income, with a maximum level of 34,416.
This only applies to those without an active second pillar pension scheme.
If You Live In Geneva
As Geneva is one of the highest taxed Cantons in Switzerland you can also receive additional tax relief by utilising your Third Pillar B. Very few people are aware that this option even exists. Your capped contributions depend on your current situation. For example, are you single, married or have any children?
To find out which account is best suited to your requirements and establish how much tax relief you can receive this year simply complete our online enquiry form and one of our team will get back to you.
Maximising Your Second Pillar
Most of our clients are unaware that there is generally a substantial shortfall in their Second Pillar contributions. This happens because it is very rare that both the employer and employee contribute the maximum amount. In order to establish how much you are able to pay back in to your Second Pillar simply contact your HR department and request an up to date pension valuation/statement. On this document there is a section that states how much can be paid back in to your pension. This amount will also be deducted from your income tax. This is known as second pillar buy back.
Before contributing any capital in to your Second Pillar you should seek advice. You have options available for you here as well. Most people simply add this amount to their current employers pension but there could be a more effective way of investing this capital. Also you must keep in mind that this is a pension and not accessible until retirement.
The Third Pillar is a must have for everyone. However, the Second Pillar buy back will only benefit some as most people require more flexibility in terms of access and contribution levels.
Contact one of our advisors today and make sure you have maximised your tax relief.
Simply leave your contact details below and we will contact you in order to make a complimentary meeting with you.