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Pension tax on pillar 3a and pension fund withdrawals? All the info!

Vorsorgesteuer auf säule 3a und pk-bezug
Lesedauer 6 Minuten

The planned pension tax on pillar 3a and pension fund withdrawals is causing a stir in Switzerland. With this tax increase, the federal government wants to abolish the tax advantages of lump-sum withdrawals and tax them at the same rate as pension benefits. But what does this mean for your pension provision? Many savers could face a considerable financial burden. Read our article to find out what impact the planned tax increase will have on you and what you need to know about it.

Why is the federal government planning a pension tax on capital withdrawals?

You may be wondering why the federal government is suddenly interested in your pension capital. The reason lies in the adoption of the 13th AHV pension at the beginning of 2024. This additional pension will lead to additional costs for the federal government, which will have to be covered somehow. To avoid the impending deficit, the Federal Council has set up a commission of experts1 to draw up proposals for a solution.

One of the proposed measures directly affects your pension provision: the preferential tax treatment of lump-sum withdrawals from the pension fund and pillar 3a is to be abolished. The group of experts argues: “Lump-sum withdrawals should no longer be favored by the federal government in comparison to pension benefits.”

What does the proposal for pension tax on pillar 3a and pension fund withdrawals actually look like?

The federal government is planning a major change to the pension tax on pillar 3a and pension fund withdrawals. In future, lump-sum withdrawals are to be taxed in the same way as pensions.

This means that taxes depend not only on the retirement capital, but also on your income in the reference year. Serge Gaillard, head of the expert commission, explains: “The federal government should no longer favor lump-sum withdrawals over pension benefits.”

An example makes this more tangible: Imagine Anna from Zurich withdraws CHF 500,000 from her pension fund when she retires. Previously, this amount was taxed separately and at a more favorable rate, the lump-sum payment tax. Under the new proposal, this lump-sum withdrawal would no longer be taxed separately, but would be added to her regular income and taxed at a correspondingly higher rate.

The federal government also wants to close loopholes. You should not be able to artificially reduce your income in the reference year. The goal: similarly high taxes, regardless of whether you choose a pension or capital.

What still applies: The tax deductions that you can currently claim when paying into pillar 3a and pension funds are not up for discussion with the planned measure. These deductions and the exemption of assets from wealth tax are to be retained in any case. 2

What impact would the pension tax have on pillar 3a and pension fund withdrawals?

The planned pension tax will have a major impact on your financial planning for retirement. For some savers, the tax burden could even quadruple. An example: Max from Bern plans to withdraw CHF 300,000 from his pension fund and CHF 100,000 from pillar 3a. Previously, this capital was taxed more favorably. With the new rule, Max would have to pay more tax.

The expert group sees two advantages to this: Firstly, the risk of needing supplementary benefits later on is reduced. Secondly, retirement provision is used less for tax optimization.

This change could cause many savers to rethink their strategy. They could opt for an annuity. However, this would limit their flexibility.

What are the disadvantages of the planned pension tax? – Contra-arguments

  • Unfair rule change: The planned pension tax on pillar 3a and pension fund withdrawals is perceived as unfair, as retirement provision is a long-term project and many people have saved for years under certain assumptions. A sudden tax increase is seen as a change to the rules in the middle of the game, which is considered highly unfair.
  • Additional burden for the broad middle class: A central argument against the tax increase is the considerable burden on the middle class and high earners. According to analyses by a major weekly newspaper, the tax burden for some savers could even quadruple. The reason for this is that savers slip into a higher progression bracket when their retirement capital is paid out, which means a considerable additional burden.
  • Negative impact on private pension provision: The planned change could have a massive impact on private pension provision. The example of Lisa, a self-employed entrepreneur from Lucerne, shows how long-term investments in pillar 3a would be penalized by higher taxes on payouts. This could cause many people to rethink their pension strategy and possibly save less.
  • Loss of confidence in the pension system: The planned tax increase undermines confidence in the pension system. Many have saved on the assumption that tax advantages will help them to remain financially independent in old age. Many have paid into pillar 3a and pension funds in the belief that the tax advantages would help them save for old age. They now feel cheated.
  • Alternative solutions: The FDP has clearly spoken out against increasing taxation and is instead calling for a brake on spending to solve the structural deficit. It argues: “We have a spending problem, not a revenue problem.”
Pension tax on pillar 3a and pension fund withdrawals

What are the advantages of harmonizing taxation? – Pro arguments

  • Lower risk when drawing an annuity: The Expert Commission emphasizes that drawing an annuity in old age involves fewer risks than drawing a lump sum. A pension offers a guaranteed source of income and financial security. In contrast, a one-off lump-sum withdrawal can be used up quickly and lead to financial difficulties.
  • Reducing the burden on the state: The experts argue that “[Mit Rente statt Kapitalbezug] the risk of receiving supplementary benefits later on is also reduced.” A pension is not only beneficial for the individual, but also for the state, as it has to pay less for social benefits.
  • Avoiding tax optimization: The planned pension tax on pillar 3a and pension fund withdrawals is intended to prevent tax optimization. The federal government wants to prevent savers from optimizing their pension provision solely for tax reasons. The Expert Commission therefore proposes eliminating the preferential tax treatment of capital withdrawals as part of retirement provision compared to pension benefits. This would lead to fairer taxation and make the decision between lump-sum and pension withdrawals more neutral.

What are the political reactions to the planned pension tax?

The planned pension tax on pillar 3a and pension fund withdrawals has triggered a broad public debate. The FDP is strongly opposed to the tax increase. However, FDP Finance Minister Karin Keller-Sutter proposed the tax increase in order to reduce the deficit. Critics believe that this would primarily affect the middle classes. If the aim had been to protect them, a tax-free amount would have been a suitable solution. But then the tax revenue from the planned measure would collapse.

The people are also worried. Many feel blindsided and fear for their pension provision, as shown by over a thousand comments in a popular daily newspaper. One comment summarizes: “Anyone who has paid in for tax benefits feels cheated.” Some are therefore calling for a referendum. The people should be able to vote themselves. The discussion shows how important the issue of retirement provision is for the Swiss.

You can join over 25,000 voters in signing a petition against the pension tax on pillar 3a and pension fund withdrawals.

What time frame can be expected for a possible introduction?

The planned pension tax on pillar 3a and pension fund withdrawals could become a reality sooner than you think. At its meeting on September 20, 2024, the Federal Council approved the relief package, which includes the regulation for lump-sum withdrawals. The relief package is due to go out for consultation in January 2025. Depending on the results of the consultation, the Federal Council will assess whether and in what form it will include the measure in the dispatch. Discussions will then take place in parliament. According to the Expert Commission, implementation could take place in 2025 if Parliament gives its approval.

The parties are already in position. The FDP rejects the tax increase. So do representatives of the SVP. Representatives of the SP are in favor of the proposal. For Sara Wyss (SP), it is “high time that the federal government restricted the privileges associated with retirement savings”. Erich Ettlin (Die Mitte) speaks of “a breach of good faith”.

The people are also following the discussion closely. Many are calling for a referendum so that they can vote themselves.

The upcoming debate in Parliament is important. If there are enough votes against, implementation could be delayed or stopped altogether. It remains to be seen how the negotiations will go and whether the citizens will call for a referendum. This is likely if the proposal finds a majority in Bern.

Summary: Pension tax on pillar 3a and pension fund withdrawals

The planned pension tax on pillar 3a and pension fund withdrawals could significantly change the Swiss pension system. The federal government wants to tax lump-sum withdrawals in the same way as pensions. This could lead to higher taxes for many savers and reduce their retirement income.

There is political resistance to the tax increase. The debate shows how important the issue is for the Swiss. Many feel blindsided and are worried about their pension provision.

It remains to be seen how the discussion will develop and whether the pension tax on pillar 3a and pension fund withdrawals will actually be introduced. The next few months are crucial. They will show whether you can continue to count on a reliable state for your retirement provision.

Smolio pension check shows income in retirement with pensions 2020

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  1. Expert group “Task and subsidy review 2024”, August 25, 2024, Link ↩︎
  2. Federal Department of Finance, October 22, 2024, Media release “Clarification”, Link ↩︎

Disclaimer

We have taken great care in compiling the content of this article. Nevertheless, we cannot rule out errors and cannot guarantee that the content is correct, up-to-date or complete. This article does not replace tax advice. We do not offer investment or tax advice and recommend that tax issues are always clarified with a tax expert and/or the relevant cantonal tax authorities. Any liability is rejected.

Last update: 02.12.2024 20:34

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Thomas verfügt über mehr als 30 Jahre Expertise als Privatanleger in fast allen Anlageklassen und zwei Vorsorgesystemen. Er gestaltet seit vielen Jahren einfache Kunden- und Serviceerlebnisse, bewegt Menschen und Organisationen und hat ein tiefes Verständnis für die Herausforderungen von Menschen bei Finanzthemen gewonnen. Thomas bringt mit seinem Background als Doktor in Wirtschaftswissenschaften Themen einfach und pragmatisch auf den Punkt.
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