Pension Smart tax savings

Follow a few straightforward tips and noticeably reduce your tax burden – to the benefit of your retirement plan.

by UBS Insights 10 Sep 2019

Photo: UBS

Pillar 3a (restricted pension plan)

Money you pay into your pillar 3a account or custody account every year enjoys full income tax relief. If you are enrolled in a pension fund, you can pay in up to 6,826 Swiss francs a year (as of 2019). If you are currently working but are not enrolled in a pension fund, you can place up to 20 percent of your net income into pillar 3a, up to a maximum of 34,128 francs (as of 2019). Note that there is no minimum amount. Every franc counts, so it is worth paying in small amounts too.

Save on taxes by making additional contributions to your pension fund

You can fully deduct voluntary contributions to your pension fund from your taxable income. Check your pension fund statement closely: It tells you whether and how much you can contribute. Gaps can arise if you stop working for a while, for example, due to parental leave. You can achieve optimum tax savings by staggering your contributions over several 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.

Benefits of staggered pension fund investments

Assumption: single, no dependent children, Protestant, residence in Olten, gross annual income CHF 80,000

Contribution in CHF

Contribution in CHF

Tax saving for one-off contribution in CHF

Tax saving for one-off contribution in CHF

Tax saving for staggered contribution in CHF

Tax saving for staggered contribution in CHF

Difference compared with one-off contribution in CHF

Difference compared with one-off contribution in CHF

Contribution in CHF

1 x 80,000

Tax saving for one-off contribution in CHF

12,379

Tax saving for staggered contribution in CHF

 

Difference compared with one-off contribution in CHF

 

Contribution in CHF

2 x 40,000

Tax saving for one-off contribution in CHF

 

Tax saving for staggered contribution in CHF

19,280

Difference compared with one-off contribution in CHF

6,901

Contribution in CHF

4 x 20,000

Tax saving for one-off contribution in CHF

 

Tax saving for staggered contribution in CHF

20,556

Difference compared with one-off contribution in CHF

8,177

Withdraw your retirement savings – but not all at once

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 when you stop working. This allows you to reduce progressive taxation. 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 50,000 francs.

Tax relief for empty rooms

If you have a room in your home that is no longer used, for example because your kids have flown the nest, your canton could allow you to claim tax relief for underuse. The imputed rental value is reduced proportionately by the unused room(s). You could then pay the resultant tax savings directly into your pillar 3a account.

Good timing pays off

The timing of a wedding, the renovation of your home, a career break or a move to a municipality with lower tax rates can help you save on taxes. If you are absent from your job between September and April, your break covers two tax years. It is also better to split major renovation work across two or more tax periods. If you move or marry, the relevant tax year may be important. If possible, choose the most opportune time.