The pension fund plays an important role in retirement planning in Switzerland. In addition to employer and employee contributions, employees have the option of making voluntary payments into their pension fund. These additional payments, also known as purchases, not only offer long-term retirement benefits, but also interesting tax advantages. In this blog post, we will go into more detail about the tax benefits of making a purchase into your pension fund in Switzerland.
Tax deduction for purchases
One of the biggest tax advantages of buying into a pension fund is the potential tax deduction. Under current Swiss tax laws, purchases into the pension fund can be deducted from taxable income. This means that the amounts paid in reduce the taxable income, which leads to a reduction in the tax burden. This tax deduction can be of great advantage, especially for people with higher incomes.
Tax-free investment income
Another tax advantage of buying into a pension fund is the tax-free investment income. Contributions paid in are invested within the pension fund and earn returns over time. This investment income, including interest, dividends and capital gains, is generally tax-free. This allows purchases to grow on a tax-deferred basis, building a larger retirement fund.
Reduction of tax progression
Switzerland has a progressive tax system where the tax rate increases as income increases. By buying into the pension fund, taxable income can be reduced, which in turn leads to employees falling into a lower tax progression. This can be particularly beneficial for those with high incomes, as they may pay a lower tax rate on a portion of their income.
Tax-deferred withdrawals at retirement age
Another important tax advantage occurs when pension fund benefits are paid out at retirement age. Pension benefits from the pension fund are taxed, but specific taxation rates apply that are often more favorable than the tax rates on regular income. This allows pensioners to benefit from a lower tax burden during their retirement years.
