LPP buy-backs: the timetable is just as important as the tax implications

For many business owners, self-employed individuals affiliated to a pension fund and executives at SMEs, the end of the year is synonymous with closing the accounts, bonuses, dividends, salaries and tax planning. Amongst this already busy list, one item deserves immediate attention: a top-up into the second pillar. Where there is a pension shortfall, a voluntary contribution can improve retirement benefits and, in principle, reduce taxable income.

However, this is not simply a matter of making a last-minute transfer. According to an article published by Allnews, it is not the date of the payment order that counts, but the date on which the amount is credited to the pension fund. For an SME or a self-employed person wishing to incorporate this top-up into their annual tax planning, the risk is therefore very real: acting too late may delay the tax benefit until the following year.

A voluntary contribution to fill a pension gap

A buy-in under the second pillar involves making a voluntary payment into one’s pension fund to fill a pension gap. This gap arises when the accumulated balance is lower than it would have been under the fund’s rules and the insured person’s career history. It may result, for example, from a period spent abroad, a late start to working life, parental leave or a reduction in working hours.

In practice, these situations affect many different profiles within a company: a founder who paid themselves a low salary during the early years, an employee who returned to work gradually after a family-related career break, a manager recruited from abroad, or a partner who has alternated between salaried and self-employed work. The second pillar is based on regular contributions linked to the insured salary; whenever a person’s career path is not linear, discrepancies may arise.

The maximum amount eligible for a buy-back is normally stated on the pension certificate. This document, which is often filed away too quickly, should be reviewed annually, ideally with the trustee or pension adviser. It not only provides a snapshot of future retirement: it also indicates whether there is scope for a buy-back and enables an assessment of the consistency between remuneration, pension provision and the personal tax situation of the director or key employee.

Why 31 December may be too late

Timing is one of the most underestimated factors. Allnews points out that a recent ruling by the Federal Supreme Court confirms the importance of the date on which funds are credited to the pension account. In other words, issuing a payment order just before New Year’s Eve is not enough if the pension fund does not receive the funds until after the end of the year.

To avoid any unpleasant surprises, it is prudent to allow for a buffer: bank processing times, public holidays, administrative processing by the fund, and any prior requests for a payment slip or confirmation of the redeemable amount. The source cited recommends, for example, that a buy-back be carried out by mid-December at the latest. For an SME, this means that discussions should not begin when the final December salaries are being processed, but rather during the autumn tax planning period.

This constraint is particularly important for people whose income varies significantly from one year to the next. An entrepreneur who has had a successful financial year, a salaried partner receiving exceptional remuneration, or an executive receiving a bonus may wish to use part of their cash to boost their pension provision. However, the payment must be made on time and the transaction must be properly documented.

The tax deduction is not always maximised by making a single payment

A pension buy-in is generally sought for its dual benefit: boosting pension benefits and reducing taxable income. However, the best tax outcome does not necessarily involve paying the entire available amount in a single instalment. Due to the progressive nature of taxation, spreading a large buy-in over several years can produce a more favourable outcome.

The example cited by Allnews illustrates this point well. For a single person living in the city of Zurich, with an income of 150,000 francs before the buy-back, three buy-backs of 50,000 francs each result in a total tax bill of 48,000 francs over three years. A single buy-back of 150,000 francs over the same period results in 62,000 francs. However, the difference depends on the canton, the municipality and the individual’s personal circumstances.

For an SME director, this logic must be considered within a broader context: salary, any dividends, the company’s ability to fund remuneration, the spouse’s pension provision, other deductions and wealth management objectives. The trust company can play a coordinating role here, by comparing several tax scenarios whilst keeping the individual’s cash flow in mind. An immediate tax benefit must not lead to the tying up of cash needed for other commitments.

Simulation is therefore essential. It enables one to assess whether the buy-back is appropriate this year, whether it would be better to split it into instalments, or whether it is preferable to wait. It also helps to avoid a decision dictated solely by tax considerations, when the real need may lie in financial flexibility, risk mitigation or wealth transfer.

Tied-up funds, not a cash reserve

An LPP buy-back is not an investment that is available at any time. Once paid in, the capital enters the occupational pension scheme and is subject to the fund’s legal and regulatory framework. For the self-employed or an SME owner, this is a key consideration: the money used to buy back contribution years must not be needed in the short term to fund a private project, a property deposit, a career change or a safety net.

Several rules must be checked before proceeding. Allnews points out, in particular, that following a buy-back, the resulting benefits cannot be withdrawn as a lump sum for three years. This restriction can have a significant impact when retirement, leaving Switzerland, buying a home or reorganising one’s assets is planned in the near future.

Another point to bear in mind: where an early withdrawal has been made for the purchase of a home, this must first be repaid before a tax-deductible top-up can be made. Following a divorce, the shortfall arising from the division of pension assets must also be made good as a matter of priority. For people who have moved to Switzerland from abroad since 2006 and who have never been members of a Swiss pension fund, the buy-back limit is capped at 20 per cent of the insured salary for the first five years.

These rules illustrate why a pension buy-in should never be treated as a simple, standardised tax optimisation measure. Two people with the same income may reach different conclusions depending on their age, family situation, housing arrangements, pension fund and future plans. For employers, it is also worth bearing in mind that employees who ask questions about their second pillar are not merely seeking a tax advantage: they are often concerned about the stability of their career and financial future.

The political debate provides a further reason to plan

The framework of the second pillar is not set in stone. According to Allnews, the 2027 budgetary relief programme, which provided for higher taxation of lump-sum payments, was rejected by Parliament. The same article mentions that in March 2026, the Council of States accepted a postulate calling on the Federal Council to examine the effects of capping buy-ins at five times, rather than ten times, the upper threshold of the LPP. It also states that the Bürgin motion, concerning the maximum insurable salary, is under discussion, with a halving of the ceiling to 453,600 francs being considered.

These developments do not mean that an immediate change applies to insured persons. A postulate calls for a report; it does not directly amend the law. But for SMEs and their managers, they serve as a reminder of a reality: occupational pension provision is evolving within a shifting political landscape. Pension schemes, executive remuneration and optimisation strategies must therefore be reviewed regularly.

Companies with more extensive pension schemes for their executives or senior managers are particularly affected. They should ensure that their solution remains aligned with their objectives regarding staff retention, coverage and governance. A generous pension scheme can be an important HR tool, but it must remain understandable, financially viable and compliant with the applicable rules.

Before the end of the year, the sensible approach is therefore not to rush, but to organise the necessary checks promptly: pension certificate, buy-back capacity, available cash, bank payment deadlines, estimated tax implications and short-term plans. A buy-back into the second pillar can be an excellent tool for pension provision and tax planning. It becomes truly effective when it forms part of a coherent personal and business strategy, validated on a case-by-case basis with the relevant specialists.