Pension Fund Buy-In: Fill Gaps and Save Taxes
Taxes can also be saved through voluntary purchases of pension benefits. Manuela Meier-Gloor, a financial planner from Zug, explains what you should consider.
Ms. Meier-Gloor, what makes more sense for tax purposes: payments into Pillar 3a, or a voluntary purchase of pension benefits?
Unfortunately, this can't be answered so generally. It depends entirely on the individual situation. You can pay into Pillar 3a annually, but only a limited amount. For the pension fund, a coverage shortfall such as from a lengthy period abroad, parental leave, or salary increase is a prerequisite for a voluntary purchase. Gaps like these can quickly become larger than the annual amount you are allowed to pay into the Pillar 3a. You can fill the pension fund in one year or across a number of years – in other words, whenever it is the most advantageous to do so in terms of tax.
With reference to tax, is there an incorrect time to make this type of purchase?
Yes. In years when you earn less or are otherwise eligible for high deductions, such as for real estate renovation, a large purchase makes little sense. Someone who would like to receive capital within three years after the payment, instead of a pension on retirement, for example, would also gain nothing: That is to say, they would be required to pay the saved taxes; furthermore, the purchase amount cannot be withdrawn in capital form during the next three years.
You can fill the pension fund exactly when it makes the most sense in terms of tax.
Can taxes also be saved on payout, like with Pillar 3a?
That is more difficult. Unlike with a number of Pillar 3a accounts, it is impossible to receive capital from the pension fund staggered over multiple years upon retirement. This makes it all the more important not to have the retirement capital from the Pillar 3a paid out on the retirement date. Otherwise, the amounts will be added together, meaning that you will also pay higher taxes on the pension fund capital. A person receiving a pension pays the same taxes as they would for a normal income.
Are there cases where you would recommend against voluntary purchases of pension benefits?
Yes – if the pension fund's financial situation is uncertain, and its assets do not fully cover the pension claims of the insured. With this type of shortfall in cover, the capital might not gain any interest at all. In the event of the partial liquidation of the pension fund, you even risk losing a portion of the saved funds. And someone who wants to have the full pension capital paid out later as a lump sum should check if this is possible in advance. Lastly, you should closely examine the regulatory death benefits before a purchase, particularly if you are not married. For example, different death benefits may be provided for a cohabiting partner; in any case, it is even possible that the entire pension assets will be forfeited to the benefit of the pension fund, including deposits. In such cases, it must be carefully considered whether a purchase makes sense and corresponds with all of your needs.