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Tied provision for comprehensive hedging
Tied pension provision forms part of the third pillar of the Swiss pension system. In particular, it is used to ensure a reliable income well into old age and maintain a good standard of living well after retirement age. The benefits from the first and second pillars are designed to ensure that at least 60% of an individual's final wage are honored. For higher incomes, the gap between a final income amount and pension income is much wider. Those who wish to make sure they enjoy a pension income closer to their last wage income need to make private provisions.
How you can cut the tax burden
In order to provide incentives for private austerity measures, the Swiss state grants tax boosts in the case of tied pension provisions. The amount paid can be readily deducted from taxable income. In addition to this, gains from interest or appreciation are also tax-exempt. However, there is a maximum limit in place which puts a cap on the capital paid annually into any pension plan. Ceilings are adjusted every year. For the year ending 2019, the maximum amounts were:
- CHF 6826 for employees and self-employed individuals who pay into a pension fund.
- CHF 34'128 or 20 percent of net income for self-employed persons without a pension.
Anyone who wants to privately handle the burden of fulfilling the maximum amount is free to do so, but they cannot benefit from the tax advantages of tied pension provision. The additional capital invested in Pillar 3b, also called free pensions, can also be invested and purchased according to the contractual provisions of the respective investment.
Time of subscription in the pension plan
Capital paid into Pillar 3a is intended solely for pensions and is therefore not readily available for release. In this case, an account can be disbursed in the pension plan for a period of 5 years before and after the statutory retirement age. In addition to regular subscription clauses, there are situations where it is possible to withdraw from the retirement plan, including:
- On departing Switzerland during relocation
- To finance a self-contained property, as this is also considered a retirement provision
- In the case of entry into self-employment, the capital must be requested up to a period one year after entry into said employment
- For the purchase of a separate pension fund (second pillar)
- Should the beneficiary die, heirs are entitled to the capital in the tied pension
- In the case of a disability pension
Investment forms and products in restricted provisions
The Federal Social Insurance Office decides which allowances are allowed in pillar 3a. There are numerous regulations in place for the operation, risk-weighing and yield prospects. In addition to this, products in the restricted provision are designed for medium to long-term investment periods. Among the subsidized products are investment products from banks, as well as from insurance companies. Banks primarily offer products in the form of pension accounts and capital protected pension products.
Insurers offer products that usually combine risk mitigation with aged savings. Insurable risks include disability, incapacity and death. Banks offer greater flexibility than insurance products and insurers. In the case of insurers, deposits are often closely regulated and losses are impacted by financial losses.
Independent advice for the best possible provisions for retirement
At MoneyPark, are helpful consultants are on hand to help you find the right financing plan for tied pension provisions, taking all your requirements and financial resources into account. You'll get a detailed overview of the products available to you, relevant suppliers and a comprehensive assessment of the prospects on offer
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