Almost all employees in Switzerland are enrolled in a pension fund via their employer under Pillar 2. Unfortunately, many employees give little thought to this even though a substantial amount is paid into the pension fund every single month. As well as providing security in old age and in the event of certain health risks, Pillar 2 frequently offers the attractive option of cutting employees’ income tax burden – substantially in some cases. The savings can be realised via additional voluntary payments into the pension vehicle. In most cases these contributions are fully deductible from taxable income. The amount of tax relief will vary depending on the employee’s tax domicile.
In many cases it makes financial sense to stagger purchases over several years, as lower contributions can enable tax at the highest marginal rate to be avoided. In this way, highly significant tax optimisations can be realised within just a few years. When employees subsequently receive the benefits on (early) retirement, as well as having to make the fundamental decision in favour of a regular pension or a lump sum payout, they also need to consider their tax optimisation options. For example, would it be possible to receive benefits over a period of several years with a view to lowering the tax rate on pension payouts? Can the money in the pension fund be left for a longer period within the tax-free Pillar 2 wrapper?
All in all, this means there are a whole range of pension fund-related options that can be tailored and deployed in line with an employee’s personal situation. It is also important to ensure the greatest possible flexibility by taking into account amendments to occupational pensions such as 1e pension plans for high earners.
The key thing is for individuals who have made pension contributions to look at these options in good time and to review their personal provision from around the age of 50 onwards.
We will be happy to help you! Please give us a call so that we can arrange an initial, independent consultation for you.
Konstantin Wyser, Partner
konstantin.wyser@swisspartners.com
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