Why purchase second pillar benefits (LPP/BVG)?
13 November 2024 | Comment(s) |
Alain Anthamatten
As well as investing in a third pillar to ensure an adequate quality of life when you retire, did you know that you can also buy back years in your second pillar?
You can make up any gaps in your occupational pension provision (LPP/BVG) by making voluntary payments. In this article, we'll explain everything you need to know about the concept of purchasing LPP/BVG benefits.
Buying into the occupational benefits pension pillar (2nd pillar)
In the context of occupational pension provision, this type of purchase allows you to make up for gaps in contributions caused by certain life circumstances, such as working at a reduced rate or abroad, taking a career break for a while, long periods of training, parental leave or divorce.
People who have not topped up their second pillar in terms of contributions may face pension gaps once they reach retirement. In principle, these gaps represent the difference between what has actually been saved in the second pillar and what could have been accumulated by working continuously since the age of 25.
The advantages of buying into the second pillar
There are a number of advantages to buying back LPP/BVG years that you should bear in mind:
- First and foremost, it allows you to prepare for retirement in the best possible way by increasing your retirement benefits and, in some cases, your benefits in the event of death or disability.
- The amount paid in is fully tax-deductible, so you benefit from a tax allowance. That's why it's often a good idea to make several purchases throughout your working life.
- You benefit from a minimum LPP/BVG interest rate of 1.25%, which varies from one pension fund to another. At Groupe Mutuel, this is already guaranteed at 2% for 2024. Your savings therefore provide you with the best return available for a risk-free investment.
When should you purchase second pillar benefits?
In the second pillar, a distinction is made between ordinary purchases and purchases for early retirement. While the former involves paying out the difference up to retirement age, the latter offers you the opportunity to plan for early retirement by drawing a pension in advance that is identical to the pension at the time of your statutory retirement. You finance your early retirement through a purchase.
When is the best time to consider making voluntary contributions?
The best thing to do is to take an interest as soon as possible, well before you approach retirement. You can make one or more payments a year to a pension fund, which will tell you directly how much to pay.
Don't wait until the end of the year!
Do you need any advice? Don't wait until the last moment and contact your LPP/BVG manager before December! Don't forget to spread your purchases over several years to optimise your tax deductions.
Second pillar withdrawals: the role of purchases
In addition to retirement, occupational pension assets can be withdrawn when you want to buy a home, become self-employed or leave Switzerland for good. However, once you have made a voluntary purchase under the LPP/BVG, you should bear in mind that the benefits are frozen for three years, during which time they cannot be withdrawn as a lump sum.
If retirement capital is withdrawn in the form of a lump sum, for example when you retire, buying into the second pillar is a question of investment and tax optimisation. It is a safe investment, not a way of improving pension benefits. In the case of the latter, the purchase will increase the amount received on retirement.
This is because the amount of the purchase is added to the capital amount formed by the savings contributions, which is then multiplied by the conversion rate that ultimately translates into pensions.
And how about combining a 3a pillar plan with second pillar purchases?
In terms of optional pension provision, taking out a 3a pillar (tied pension provision) is an attractive alternative to making pension fund withdrawals. This is particularly the case when the return on your fund is low.
What's more, payments into a tied 3a pillar allow you to diversify your capital, so you don't put all your eggs in one basket. This private pension option offers greater flexibility in terms of withdrawals and investment in investment funds. However, LPP/BVG purchases offer more attractive conditions in terms of both returns and security.
From a tax point of view, just like buying into the second pillar, payments into a 3a pillar also enable you to obtain tax reductions. Finally, when you retire and want to receive all your benefits in the form of a lump sum, planning for different payout dates for the second and 3a pillars means you can benefit from a lower tax rate.
Purchasing second pillar benefits: what you need to remember
- In the short term, purchases help save tax.
- Over the years, they help you benefit from the returns on your investments.
- Purchases must be stopped three years before taking a lump sum (for housing or retirement).
- Finally, and ultimately, purchases offer higher annuity or lump-sum benefits when you retire.
Depending on your personal situation and the resources available to you, you may want to consider making a purchase to make up for any shortfalls in your LPP/BVG pension, and thus optimise your tax situation and your retirement. Buying into the second pillar is therefore advisable but should be part of a long-term plan. Contact your pension fund now!
