Purchases into the pension fund

The pension fund plays an important role in retirement planning in Switzerland. In addition to employer and employee contributions, employees have the option to make voluntary contributions into their pension fund. These additional contributions, also known as purchases, offer not only long-term benefits for retirement provisions but also interesting tax advantages. In this blog post, we will take a closer look at the tax advantages of making a purchase into the pension fund in Switzerland.

Tax deduction for purchases

One of the biggest tax advantages of making a purchase into the pension fund is the possible tax deduction. According to the current Swiss tax laws, purchases into the pension fund can be deducted from taxable income. This means that the contributed amounts reduce taxable income, leading to a reduction in tax liability. This tax deduction can be particularly beneficial for individuals with higher incomes.

Tax-free capital returns

Another tax advantage of making a purchase into the pension fund lies in the tax-free capital returns. The paid contributions are invested within the pension fund and generate returns over time. These capital returns, including interest, dividends, and capital gains, are generally tax-free. This allows the purchases to grow tax-advantaged, thus building a larger retirement capital.

Reduction of tax progression

Switzerland has a progressive tax system, where the tax rate increases with rising income. By making purchases 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 advantageous for individuals with high incomes, as it may result in them paying a lower tax rate on a portion of their income.

Tax-advantaged payouts in retirement

Another important tax advantage arises upon the payout of pension fund money in retirement. Although the pension benefits from the pension fund are taxed, specific tax rates apply that are often more favorable than the tax rates for regular income. This allows retirees to benefit from a lower tax burden during their retirement years.