Let’s pick Lauren as an example. She is 35, married and is currently earning 100,000 CHF per year. She is pregnant and wants to understand how the 60% contract when she returns to work after maternity leave is going to impact her pension provision and associated benefits.

Current Situation:

She earns 100,000 CHF per year. The coordination deduction is currently 25,095 CHF (this reduction is to coordinate the first and second pillars) therefore the coordinated salary is:

• 100,000- 25,095 = 74,905 CHF

As she is 35, a minimum of 10% is paid into her second pillar therefore 7,490 CHF is being contributed on an annual basis.

60% Contract:

60,000 CHF earnings per year. Lets assume the coordination deduction hasn’t increased since she returned to work, therefore the coordinated salary is:

• 60,000 – 25,095 = 34,905 CHF

She is now 36 and still in the 10% category so 3,490 CHF is being contributed to her second pillar on an annual basis.

Impact:

Lauren’s Second Pillar Retirement Savings

Although Lauren has reduced her contract by 40%, her annual second pillar contributions have decreased by 53%.

Lauren’s Second Pillar Insurable Benefits:

Children’s disability pension, children’s orphans’ pension, Lauren’s disability pension and the survivor’s pension in place for her husband will all also decrease as these are based on the new coordinated salary.

What does this mean for her and her family?

Lauren will be the main carer for their child and if Lauren was to become sick or die the family would have less protection in place as this is calculated on the new lower figure under the new contract.

At a time when they need more protection in place, they will have less.

What can be done?

In Lauren’s case she started a third pillar with insurance to protect her family on her death. Now if she dies before retirement the family will receive a 200,000 CHF lump sum and she is using the savings provision to save for her own retirement in line with her attitude to risk.

Of course, if Lauren’s circumstances were different my recommendations could have also been different – but that’s the benefit of a financial review

Its name is Inflation, and it’s one of the most underappreciated forces that can impact your life financially.

So, what is inflation? To put it as simply as possible, it is the decrease in the purchasing power of your money over time. For instance, think about what you can buy from the supermarket for 100 CHF today, and then what you might be able to buy with the same 100 CHF, but in 10 years’ time.

Each franc is worth less because the price of goods and services is more expensive. Even a low rate of inflation, if persistent, can have a significant impact on the long-term purchasing power of money. At just 2 percent per year, if sustained, inflation will double the price cost every 35 years. So, in reality, a franc would lose half of its purchasing power. Imagine what the effect would be at 5 percent per year or 8% like we are seeing in parts of Europe or the US now.

If someone took out a fixed-rate, 10-year mortgage at 1 percent and inflation turned out to be 2 percent over the life of the mortgage, the debtor (borrower) would end up paying a real interest rate of negative 1 percent. That’s a good deal for the debtor, but not for the creditor (lender). As you can see from this simple example understanding inflation and its effects can have a significant bearing on your financial assets.

For those that may remember Switzerland, which is now considered a low inflation rate country, has seen multiple occasions of high inflation rates most notably in December 1973 when the headline rate hit 12%, far above where we are today. As the world recovers from the effects of Covid-19, we are starting to see a rapid acceleration in inflation for advanced and emerging markets, driven by firming demand, supply chain shortages, and rising commodity prices.

As the cost of oil rises, the cost of fuel increases which has a knock-on effect on just about everything we purchase. This is especially scary for retirees with large holdings of lower return assets, such as cash and bonds. Fortunately, a common secondary effect of inflation is rising interest rates, as upward price pressure eventually prompts Central Banks to increase borrowing costs and dial back bond-buying programs to cool a heating economy.

To ensure your investments can weather the effects of rising inflation, one should always seek the advice of an industry professional. For more information and advice contact a qualified adviser at Swissential on tel. 022 786 2020 or email info@swissential.com

Too often in people’s mind: Taxed at source = Nothing else to worry about. This is simply wrong.

The main reasons for this we have encountered throughout our daily work and interactions with international professionals are, in order:

1. Real ignorance of how the system works (the individual has no concept he/she is doing something wrong)
2. Faked Ignorance – due to a lack of interest or a potential loss from doing things right by the authorities (ex: increase in taxes when declaring a foreign property)

Switzerland is one of the very few countries that levy a wealth tax on its tax residents. To be precise, the cantons levy such taxes. You will therefore pay more wealth tax depending on the canton in which you live, and also the municipality where you live within that canton.

We thought we would draw your attention to a few things, so you cannot say you did not know. When you are taxed at source you should be declaring your wealth by filing a separate form when above a certain threshold …. so that you can unfortunately be taxed on your wealth if it is appropriate:

1. CHF82’839 for a single person living in Geneva
2. CHF165’678 for a married couple living in Geneva
3. CHF112’000 for a married couple living in the canton of Vaud

Your wealth is composed of all your bank deposits, investments and properties, in Switzerland or outside. The main problem of doing something wrong without knowing is that you then do it wrong all subsequent years increasing the likelihood of getting caught. Considering taxes can be backdated for 10 years and penalties applied, the price of one single repeated mistake can be dear.

In a new world, with automatic exchange of information and increased transparency, ignorance is no longer a medicine of choice.

Sorry to be the bearer of bad news, but it is for your own good.

The answer is of course YES – but, we are not tax advisors and only recommend established professionals as a service to our clients. The real question is in fact this: How much should you be paying for a tax return?

Let us give you some pointers so you can make the right decision for your circumstances. There are 3 main scenarios to consider.

A. You have recently moved to Switzerland & your company uses the services of KMPG, PWC or E&Y – grace period up to three years.

You therefore have a free pass for two to three years, before you actually have to pay for it yourself. In this case, we have several pieces of advice for you:

DON’T:

1. Not pay attention to how the system works for 2 to 3 years.
2. Start wondering towards March of year 2 or 3 (when it is your duty to file a tax return) “How does it work? How should I deal with this?

DO:

1. Try to understand, if possible, what KPMG, PWC or E&Y do for you whilst it is a “free” service provided by your employer.
2. The last year your tax return is covered by your company, start asking colleagues and trusted friends who they use for their tax return and roughly how much they pay. You would be surprised at the difference in price, from CHF100 to CHF2’000 for a simple tax return.

B. You are taxed at source – grace period up to five years.

Your employer collects your taxes straight form your salary on a monthly basis. This is simple and straightforward, but again, this will not last forever. This system only works until:

• your household income (you and your wife or registered partner) exceeds CHF500’000 (Geneva canton) or CHF120’000 (all other cantons) in general
• you purchase a property in Switzerland
• you get a C permit
• you get married to a Swiss person (a career opportunity can turn into a beautiful love story!)

Whilst you are taxed at source, you do not need the services of a tax advisor to help you file your “Rectification of Holding Tax document” at year end. A simple chat with your Swissential adviser will suffice – it is part of our service. This said, you should pay attention to the income thresholds described above to make sure you are starting to file a normal tax return when you ought to. If this is the case, please review the below:

C. You have a fiscal duty to file a normal tax return – no more grace period.

Whether you must file a normal tax return straight form your first year of arrival in Switzerland, or your grace period has expired (i.e. your company no longer pays for the service for you, or your tax at source status no longer applies), you should consider the comments below. Please also bear in mind if you were taxed at source and must now file a tax return, the taxes already paid will be deducted from the remaining taxes due to the fiscal authorities (or you might even get a tax credit, which is always a pleasant surprise).

DO:

1. Use the services of companies tested by a trusted friend or colleague
2. Pay the right amount for the service you need. Most people do not need to pay more than: – CHF250 to CHF300 for a simple tax return (single person, no children, on a C permit, with one property abroad).CHF500 to CHF600 for a more complex tax return (i.e. married with kids, two incomes, a property abroad and several bank accounts and investment accounts held abroad)
3. Should you feel thrifty and up to the task, depending on whether your situation has not changed from one year to another, file your tax return yourself. You can use the work previously completed by your tax advisor last year. Speaking French, German or Italian certainly help depending on where you live in Switzerland.

DON’T:

1. Be cheap and try to do it yourself because you think “it won’t be that difficult”. If anything goes wrong, you can waste a lot of your time and energy trying to fix it with the authorities.
2. Don’t always think that the cheapest quote is the best. Paying too little can be as grave a mistake as paying too much. Make sure that everything you need is covered – half a job done is no compensation for the additional time you’ll need to spend on this.

At Swissential we advise pragmatism. Filing a tax return when using a professional means:

• you speak to a professional for 30 min to explain your situation and to get acquainted
• you send them the relevant documentation they have requested
• you speak another 30 min to confirm nothing is missing and that you understand the tax return that has been prepared for you – remember, once you sign, you engage your responsibility so please only sign what you understand everything
• your tax advisor will do a standard follow-up with you.

For something to be simple, you need to understand it first. We hope we managed to make this matter a little bit simpler. If not, let us know and we are happy to help.

The whole process can take two to three hours and therefore justifies paying CHF250 to CHF600.

Setting aside love and feelings (we are a financial advisory firm after all), our consultants usually get the same question from our clients, “I have heard I will pay more taxes if I get married, is it true?”.

There are 5 parts to that questions: Administration, 1st pillar, 2nd pillar, your global income tax rate & Inheritance tax. As expected, the answer is both yes and no, depending on how restrictive you are with your answer and the structure of your earnings. Let’s look at why.

1. Administration: Married = 1 point
   Being married simplifies a lot of the day to day life. Consider just filing your taxes. Married couples file one tax return, unmarried couples have to file separate returns. This advantage, in case of divorce can also become a real Pandora’s box.
2. 1st Pillar: Unmarried couples = 1 point
   A full annuity for a couple after 43/44 years of contribution will never exceed 150% of a standard annuity for one person. Therefore, there is certainly a disadvantage for married couples in this regard.
3. 2nd Pillar: Married = 1 point
   Many pension foundations require at least 5 years of proven common living to offer the same benefits unmarried couples have than married ones. Often, too many foundations offer no benefits at all to unmarried couples, resulting in a significant loss should the worst happen to one of the members of the couple.
4. Global Income tax rate: We have a tie
   Depending on your canton of residence, the splitting of your income (50-50 or 70-30) and your total common revenue, you might pay more taxes should you get married. In general, the more you earn, the less beneficial it is to be married. For a combined income above CHF300’000, it is often better to not be married.
5. Inheritance Tax: Married = 1 point
   Forced heirship exist in Switzerland, it is therefore more difficult to protect a partner than a wife. Also, whilst there is virtually no taxes between spouses (up to 6% in Geneva above CHF500’000), taxes amount to 26% above CHF100’000 for partners.

All in all, if you are ready to pop the question, don’t let taxes prevent you from doing so as it is not a good enough excuse!