Last update: 17.09.2024 08:36
A recent, surprising ruling by the Federal Supreme Court fundamentally changes the purchase of an AHV bridging pension. Find out why this ruling turns previous practice on its head and what it means for you in terms of tax deductions on early retirement.
Three-year blocking period for capital withdrawals after a pension fund purchase
Purchases into the pension fund were previously only tax-deductible if they were not made within a vesting period of three years before retirement. This also applied to pension fund purchases for an AHV bridging pension.
In the event of early retirement, a bridging pension from the pension fund serves to replace the AHV pension that is not paid until ordinary AHV retirement age. The bridging pension ends at ordinary AHV retirement age.
But why is there a blocking period for the lump-sum withdrawal of buy-ins? This is to prevent abuse of the tax benefits associated with a purchase into the pension fund. Specifically, it is intended to prevent people from paying large amounts into their pension fund shortly before retirement in order to save tax and then withdrawing the money as a lump sum with privileged taxation upon retirement. The vesting period of 3 years must therefore be observed to the exact calendar day.
Does the blocking period for a lump-sum withdrawal also apply when purchasing an AHV bridging pension?
The specific case concerned an insured member of the federal Publica pension fund. On May 29, 2015, the then 60-year-old taxpayer made a one-off payment of Fr. 62,050.40 to Publica from his own funds. The employer made a contribution of the same amount to finance a bridging pension. This bridging pension was intended to bridge the period between his early retirement and the start of his regular AHV pension.
As part of his early retirement, the insured person received a lump-sum payment of CHF 1.4 million on July 3, 2015. The tax authorities of the Canton of Solothurn refused the deduction of CHF 62,000 in the tax return, as only a few months had passed between the purchase and the lump-sum payment and the three-year blocking period had therefore been breached.
The insured person lodged an objection and argued that the three-year vesting period pursuant to Art. 79b para. 3 BVG could not apply to the funding of a bridging pension. However, both the tax authorities and the tax court of the Canton of Solothurn rejected his appeal.
The insured person took the case to the Federal Supreme Court. Surprisingly, the court ruled in his favor.
The Federal Supreme Court entitles a purchase for an AHV bridging pension to a tax deduction even without a vesting period
The Federal Supreme Court argued that the purchase for an AHV bridging pension serves to bridge the gap until the ordinary AHV pension begins and should therefore be regarded as an AHV pension, even if it is formally paid by Publica.
In addition, it is not only the taxpayer who makes a contribution, but also the employer to the same extent. It is also important that the purchase is booked separately and is not part of the retirement assets.
The court argued that the purchase specifically serves to finance a bridging pension and has no influence on the amount of the pension capital. Therefore, the contribution does not accumulate pension capital that can subsequently be withdrawn in the form of capital with privileged taxation. Instead, the contribution is used to finance a benefit that can only be drawn as a pension and is taxed at the standard rate. It is therefore not a “purchase” and is not subject to the scope of application of Art. 79b para. 3 sentence 1 BVG, which regulates the three-year vesting period.
Summary and outlook for the purchase of the AHV bridging pension
The Federal Supreme Court ruling BGer 2C_199/2020 of December 28, 2021 has far-reaching implications for the practice of pension funds and the tax treatment of pension fund buy-ins into the AHV bridging pension. It has opened the door to a new tax-saving option: The pension fund buy-in to an AHV bridging pension.
It allows a purchase to finance bridging pensions to be deducted for tax purposes, even if it was made within the vesting period. However, such purchases must be held in separate accounts with the pension fund in order to be able to claim the deduction for tax purposes. This requires a technical implementation in the management of retirement accounts at the pension funds.
It therefore remains to be seen how pension funds and tax administrations will react to this decision. But one thing is certain: there are always innovations and surprises in the world of pensions.
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