Why consider a pension fund buyback before the end of the year?

We are nearing the end of November, a time when many people focus on year-end projects, planning for the holidays, and sometimes reflecting on the past year. But did you know that it’s also the perfect time to optimise your long-term financial situation through a buyback into your pension fund?

If these terms sound complex, don’t worry. Let’s explore this concept together and see what it could bring to you.

What is a pension fund buyback? 

In Switzerland, the pension fund (or second pillar) is a key component of your retirement provision and overall wealth. It provides you with a supplementary income in retirement, in addition to the AVS. But did you know that it is possible, under certain conditions, to top up your pension savings through "voluntary buybacks"?

These buybacks allow you to fill gaps in your pension fund, often caused by career interruptions, fluctuating income, or years spent abroad.

In return for these payments, you benefit not only from an increase in your future retirement benefits but also from an immediate tax advantage: the amount contributed is deductible from your taxable income.

Why is the end of the year ideal?

The year-end period is strategic for several reasons:

1. Immediate Tax Benefits: By making a buyback before 31 December, you reduce your taxable income for the current year. The result? A tangible tax saving on your next tax return. 
2. Simplified Planning: This is a time when many people review their financial situation, making it easier to anticipate future projects and set priorities.
3. Growth of Your Assets: The earlier you make your buyback, the sooner your funds begin to generate returns within the pension fund, thanks to interest accrual.  

The Pros and Cons

Making a pension fund buyback is a smart decision but requires careful consideration.

Pros:

• Significant tax optimisation.
• Increased retirement benefits.
• Effective use of dormant cash.

Cons:

• Locked funds until retirement.
• The purchased amounts cannot be used for other projects, such as real estate investment (except for a primary residence).
• If you withdraw the funds as a lump sum, there must be a three-year gap between the last buyback and the capital withdrawal to avoid adverse tax consequences.

Pay attention to pension fund regulations

Before proceeding with a buyback, it’s crucial to review your pension fund’s regulations. Why? Because each fund has its own rules in cases of death before retirement. In some instances, the purchased amounts may be returned to your heirs, while in others, they remain in the collective fund. This detail can significantly impact your estate planning.

Our experts are here to help you analyse these details and ensure that your pension strategy aligns with your personal and family objectives.

Is it right for you?

A pension fund buyback is not a decision to be taken lightly. It’s a strategy that should fit within a comprehensive view of your assets and financial goals. Our experts can evaluate your situation and guide you through every step, helping you maximise the benefits both now and in the future.

Have questions? Let’s schedule a meeting to discuss your opportunities together.