Pension Retirement: smart tax savings

Money that you deposit in your pillar 3a account or custody account enjoys full income tax relief in accordance with the limits (up to the maximum deposit amount). The prerequisite is gainful employment and an earned income subject to AHV contributions or income in lieu of gainful employment. If you are enrolled in a pension fund, you can pay in up to CHF 7,056 per year (as of 2024). If you are currently working but are not enrolled in a pension fund, you can deposit up to 20 percent of your net income in pillar 3a, up to a maximum of CHF 35,280 (in 2024). Note that there is no minimum amount. Every franc counts, so it is worth paying in small amounts too.

Voluntary contributions to your pension fund are generally fully deductible from your taxable income. Check your latest pension fund statement closely. It will show you whether you can make a contribution and, if so, how much. Gaps can arise if you stop working for a while, for example due to a career break, temporarily working fewer hours or as a result of a divorce. To maximize your tax savings, we recommend staggering your deposits over a period of years. However, think carefully before making additional contributions to your pension fund. Ask your pension provider whether voluntary contributions can increase risk benefits in the event of death or disability. Also check the financial health of your pension fund before you make a decision, by finding out about the funding ratio. The law provides for certain restrictions regarding buy-ins. For example, no lump-sum withdrawals (e.g., home ownership promotion, withdrawal of retirement capital) may be made for three years after a purchase.

Assumption: single, no dependent children, Protestant, residence in Olten, gross annual income of CHF 80,000 (tax rates for 2023, to simplify calculation of the taxable income we have used lump-sum amounts for social insurance payments and tax deductions).

Depending on the canton, you can save a lot of money by withdrawing money from your pension in stages, for example to pay off a mortgage or after you stop working. This way you can avoid paying higher rates of tax. Therefore, try to stagger withdrawals of your capital from pillar 3a, from your pension fund or, if applicable, from the vested benefits foundation. To do so, you will need several pillar 3a accounts, which can all be opened with the same bank. Open an additional pillar 3a account as soon as your existing one reaches around CHF 50,000.

If you have a room in your home that is no longer used, for example, because your kids have flown the nest or your partner has died, the Confederation and certain cantons could allow you to claim tax relief for underuse each year. In simple terms, your home’s imputed rental value is reduced in proportion to the number of unused rooms. The prerequisites vary between cantons. The general requirement is that the individual rooms are permanently out of use – in certain cantons even the furniture has to be removed. You could then pay the saved amount into pillar 3a right away, for example.

The timing of a wedding, the renovation of your home, a career break (e.g., unpaid leave / sabbatical) or a move can sometimes lead to tax savings. The decision to spread major renovations over several tax periods can prevent you paying higher tax rates and thus lead to bigger tax savings than if the renovation had been done in the same tax year. If you move or marry, the relevant tax year may be important. If possible, choose the most opportune time.