A win-win situation: optimise your retirement savings and save taxes

3rd pillar

The right set-up: while you do benefit from interest with a traditional 3a retirement savings account, you generally earn more with a 3a retirement fund, provided you can take a longer-term investment horizon. 3a retirement saving at Bank CIC offers the flexibility you need to choose between a pillar 3a retirement savings account, investing in a retirement savings fund or a combination of the two. It is important to think carefully about your personal financial situation and future needs in order to make the best possible choice.

Pillar 3a also has two important tax advantages:

1. Contributions: any money you pay into your pillar 3a is tax deductible. This allows you to reduce your taxable income. The tax advantage can be considerable, especially if you avoid a higher tax rate and fall into a lower tax band. The maximum contribution in 2023 is CHF 7,056 for employees with a pension fund, or 20% of net income from employment capped at CHF 35,280 for employees without a pension fund.
2. Capital withdrawal: If you access your 3a savings when you retire, capital withdrawal tax is due. The good news is that these tax rates are generally lower than income tax. Withdrawing in stages allows you to spread the money over several years, reducing the tax even further. Find out more in the blog post Smart planning can secure your future: maximising retirement savings on withdrawal.

Pension fund

Voluntary contributions to your pension fund can also offer ways to optimise your pension and taxes. There is often scope to buy in to your pension fund because the contributions made in the past did not match your current income or there is a pension shortfall because you took a break or started your career late. Your pension fund statement will show whether you can do a buy in, and if so how much.

As with pillar 3, pension fund contributions can be deducted from taxable income. If you have a significant shortfall, it may be worth spreading the contributions over several tax years to obtain the greatest possible tax saving.

But there are a few points to consider before paying in to your pension fund:

1. What sort of interest will your retirement savings earn? In some cases, it may make more sense to defer paying in to the pension fund and invest the money elsewhere for a while, where you can expect higher returns. That way, your money will grow and can be paid in to the pension fund at a later date. You benefit twice over; once from the higher return and once from the larger amount of capital you can deduct from taxable income.
2. How is your pension fund doing right now? You should always check your pension fund’s coverage ratio. If it is at or over 100%, your money is well invested. If it is below 100%, that means not all the assets managed by the pension fund are protected, indicating you should refrain from paying in further contributions.
3. What insurance benefits does your pension fund offer? Will you or your heirs receive some of the amount additionally paid in if you become unable to work or die?
4. Are there any other terms or restrictions on buy-ins you need to be aware of?

You should always check first with your pension fund or a financial expert before paying in.

Your individual situation

In summary, we can say that retirement saving offers various ways of saving taxes. For example, you can make voluntary contributions to your pension fund or pillar 3 and deduct them from your taxable income. You can also invest your retirement savings in assets that tend to provide a higher return. It is important to bear in mind that time is key when optimising your retirement savings. Measures taken to optimise them often take several years to have an effect. The sooner you start optimising, the more you can benefit later.

Optimising retirement savings is a complex subject and has to be tailored to your individual situation. That is why we recommend taking advice from your personal relationship manager. Together you can define the right steps to secure your financial future.

Please also note our six tips on pillar 3a.