8 pension fund mistakes can cost you thousands of francs

Buying into your pension fund is only worthwhile if you can really spare the money in the long term. Once paid in, it remains blocked – usually until retirement. There are only exceptions in certain situations, such as buying your own home, emigrating or becoming self-employed. For everything else, the door remains closed.

Many people underestimate how much they limit their financial flexibility. Imagine you want to renovate a house or suddenly have to cover high healthcare costs – and your money is stuck in your pension fund. So think carefully about whether your liquidity is sufficient for emergencies even after the purchase.

Timing is crucial to the success of your purchase. If you pay in too early, you tie up capital that you might have needed for other purposes, such as buying a house or your children’s education. You may also miss out on better investment opportunities with higher returns.

Even more serious: if you want to withdraw capital instead of a pension, you must pay in at least three years before you retire. Otherwise, the state will reclaim the tax savings. That’s why experts recommend making the purchase shortly before retirement – then you can make the most of the tax advantage.

It sounds tempting to pay in a large sum in one go. But this can cost you dearly in tax terms. This is because progressive taxation means that your tax rate increases with the amount you pay in. So you end up paying more than you need to.

It is better to spread the amount over several years. For example, if you pay in CHF 20,000 three times instead of CHF 60,000 all at once, you will benefit over several tax periods – and reduce the overall burden. Patience literally pays off here.

Not every pension fund is financially sound. If the coverage ratio is below 100 percent, this means that the fund has fewer assets than it actually needs. In such cases, restructuring measures are imminent: higher contributions, lower benefits or even cuts.

So if you pay into an ailing fund, you run the risk that your hard-earned money will later yield less or be partially lost. Therefore, check the annual report or ask specifically about the cover ratio before you decide to make a purchase.

Many people assume that a purchase automatically provides better cover for surviving dependants. However, this is a fallacy. In many funds, widow’s or orphan’s pensions are based on the insured salary – not on the additional payments.

This means that your family may not benefit from your purchase at all. Read the regulations of your fund carefully and check which benefits are actually paid out in the event of death. If necessary, you can help out with separate risk insurance.

Another stumbling block is the statutory vesting period. Even if you are allowed to withdraw your money early – because you are emigrating, for example – the following applies: a purchase is only available again after three years. If you ignore the deadline, you have to pay back the tax savings.

This rule is designed to prevent you from buying into your pension shortly before retirement, saving tax and then withdrawing the money again immediately. So plan ahead. Think about whether a career change, emigration or self-employment might be on the cards in the next three years.

Many people leave money on the table because they don’t know their purchasing potential. In management pension plans in particular, you can often pay in significantly more than you realize. Higher savings contributions or better salary coverage increase your potential by hundreds of thousands of francs.

Talk to your employer or the administrator of your pension fund. Perhaps your salary share or savings contribution can be adjusted. This will secure you more tax advantages – and a noticeably higher pension in old age.

The second pillar is not always the best solution. If your fund only pays low interest or is financially weak, the third pillar (pillar 3a) may be a better option. Here you also benefit from tax breaks, but often have more flexible investment options.

A comparison is particularly worthwhile if your pension fund generates low returns. By weighing up your payments between the second and third pillar, you can make the most of the advantages of both systems.