It's never too late to make the right decisions!
1. Make the most of your pension plan
To grow your wealth in a tax-efficient manner, be sure to take full advantage of Switzerland’s supplementary occupational pension plans, which allow you to pay contributions on salaried earnings between 126,900 Swiss francs and 846,000 Swiss francs.
If you are an employee and your annual salary exceeds 126,900 Swiss francs, these plans are an excellent way of expanding your pension coverage.
You can, for example, pay part of your salary into a pension plan and then deduct those payments from your taxable income.
It’s also possible to make additional voluntary contributions to fill in any gaps from prior years in which you did not fully contribute. Such payments are also tax deductible.
2. Protect your life partner
While Swiss social security coverage (AVS) does not pay out to life partners, occupational pension plans, vested benefit plans and personal pension vehicles often do.
For several years now, it has been possible for your life partner to receive some of your pension savings in the form of benefits in the event of your death, if this is stipulated in your pension provider’s regulations.
And when it comes to vested benefit vehicles and restricted personal retirement products, the main beneficiary can be the person with whom you shared your life for at least five years up to your death.
In all three cases, you will have to inform your pension provider of your wishes in writing.
3. Find the right balance between your salary and dividends
If you’re a business owner or self-employed, it may make sense to pay yourself a dividend in some situations. But it’s also important to think about the pension benefits you get if you receive a salary.
Income that is subject to social security contributions can also be insured through your occupational pension, but the same is not true of dividends.
The fact that you don’t pay any social security contributions can make dividends seem appealing in the short term. But if your dividends are too high – and your salary too low – over the long term, you won’t be able to optimise your pension plan and build up your pension savings for retirement. It’s therefore a good idea to think very carefully about how to divide up your annual income between a salary and a dividend.
4. Choose the right legal structure for your company
If you run your own business, you have to consider which legal structure will be most beneficial from a financial and a tax perspective.
Many entrepreneurs decide to set up a sole proprietorship. But the tax bill when selling this type of company can be huge, as you’ll be taxed on the difference between the selling price and the company’s book value (although the tax rate is reduced slightly if you’re selling after your 55th birthday). The rate for social security contributions for sole proprietors is 9.65%.
However, if you have a limited liability company (Sàrl) or a corporation (SA) and decide to sell your shares, you won’t, in theory, be taxed. It’s therefore a good idea to plan ahead and change the legal structure of your company in time to reduce your tax bill when you sell.
5. Use pension solutions to optimise the sale of your company
Once you’ve decided to sell up, think about paying any excess cash you have into a pension plan in order to reduce your tax bill.
Any cash you have in your company accounts will be treated like a dividend and taxed at a rate of 60% (Swiss average) when you sell your company – this is known as indirect partial liquidation.
Prior to selling, it therefore makes sense to pay out that money in the form of a salary or a dividend. You can then use the funds to make additional tax-deductible pension contributions to fill in gaps in contributions from prior years.
6. Customise the management of your pension savings
With a non-compulsory pension plan – such as a supplementary occupational pension plan, a vested benefit vehicle or a restricted personal pension product – you have some control over how your pension assets are managed. Indeed, you can design your own investment strategy based on your investor profile and risk appetite.
What’s more, the investment rules governing these pension plans are not as strict as those for compulsory plans. This means that a wider range of investment opportunities is available, with the potential for higher returns.
To go deeper
If you have an occupational pension, you need to find out what impact the reduction in the conversion rate will have on your retirement. If the conversion rate is lowered to 6%, for instance, this would reduce your annual pension by around 12%. So what can you do to make up for this shortfall?
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