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What should you keep in mind when making voluntary contributions to your pension plan?

If you have enough funds, making voluntary contributions to your pension fund could be quite lucrative. On the one hand, you can thus strengthen your old-age plan, and on the other the privileged contributions can bring you tax savings. Whether to make such contributions or not should be well thought out, however.

International taxation

 

Positive Aspects

Basically, making voluntary contributions into your pension plan is a good thing. The obvious reason is to strengthen your old-age plan. In addition, second-pillar contributions you make on your own are tax-privileged. Depending on how much you pay in, you can also save much in taxes. With the contributions staggered over many years, the effect can be even more powerful.

Negative Aspects

The decision to make such voluntary contributions should not be taken recklessly, however. More specifically, there are two aspects that first need to be considered:

  1. What happens to your pension plan in case of your premature death?

Some pension plans are so designed that voluntary add-on products are fully paid out only to the insured person. Should he or she die before retirement, however, then some of them may be (partially) lost. Therefore, this should be checked in advance.

  1. What about your pension plan’s funding?

It is a very important question. Should a pension plan be not fully funded, then voluntary contributions should be assessed rather negatively. If a pension plan remains underfunded for many years, it may have to be recapitalised. If this is the case, the insured may need to pay extra money to recapitalise the plan. Therefore, before you decide to make any voluntary contributions, you should make sure that your pension plan is sound.

 

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