The Federal Council is considering an increase in the taxes that accrue on the payout of pension assets. However, it clarifies that the tax deductions that people paying into the second and third pillar can now claim are not available under the planned measure.
In October 2024, various media reported on the Federal Council’s consideration of bringing the taxation of capital withdrawals from pillars 2 and 3a into line with the taxation of pension withdrawals. For the «Neue Zürcher Zeitung», for example, it is clear that this would be a noticeable deterioration for many taxpayers. And it states: «Today, the capital paid out from the second and third pillars is taxed separately from other income, at a privileged rate; in the case of direct federal tax, it is one-fifth of the ordinary rate. The Federal Council wants to abolish this privilege.» In future, however, the withdrawal of old-age capital will no longer be taxed more favorably than the withdrawal of old-age pension, as the NZZ further explains: «To put it simply, the capital from the 2nd and 3rd pillar will be converted into a corresponding annual pension according to the remaining life expectancy. This annual pension will be added to other income. The resulting tax rate is decisive for the taxation of the paid-up capital.» And the «Handelszeitung» calculates: «Whoever earns around 140'000 francs and gets paid 350'000 francs will in future pay 17'800 francs instead of 6'580 francs.»
The FDF provides clarification
Based on various media reports, the Federal Department of Finance (FDF) published a statement on 22 October 2024. It states that «assumptions have been made to some extent as to the extent of the additional tax burden in individual cases. [...] The proposed measure on capital withdrawal is currently undergoing in-depth verification and no specific arrangements have yet been made which would make it possible to assess the consequences in general and in individual cases.» For example, it remains to be clarified whether capital withdrawals from pillar 3a, 1e-management foundations and vested benefit foundations can be treated in the same way as those from pension funds, especially since in pillar 3a, 1e-management solutions and vested benefit accounts, unlike pension funds, there is no choice between capital withdrawal and pension withdrawal. The FDF also criticizes the fact that the impression was created that those making payments to the 2nd and 3rd pillar could no longer benefit from taxation.
Tax deductions are not to be affected by the planned measure
For the FDF, it is clear that: «the tax deductions that can be claimed by contributors to the 2nd and 3rd pillar are not available with the planned measure.» This and the exemption of assets from wealth tax should be adhered to in any case. «This will continue to provide a financial incentive to make self-responsible contributions to retirement provision,» the FDF is convinced.
Federal budget to be put back on track
The Federal Council has set up an expert group on «Expenditure and Subsidy Review» to clean up the federal budget. This group has proposed to the Federal Council some 60 measures with which to put the federal budget back on track. The expert group concluded that the adjustment of the federal budget can and should take place on the expenditure side. At the same time, however, the expert group was tasked with examining existing tax advantages or gaps. Among other things, the expert group has examined the unequal taxation of capital and pension payments from the 2nd and 3rd pillar: «Today, the higher their other taxable income and the larger their capital are, the more taxable the pensioners receive, the more taxable they have compared to pensioners. If pension taxation were to be approximated, the federal government would receive additional income from direct federal tax of 220 million and the cantons 60 million.»
Can the state suddenly change the regulations?
As the NZZ points out, the proposed change would be costly for medium-sized businesses and high-income earners; these groups would be sensitively affected. It also raises the question of reliability: «After years of promoting and encouraging tax-privileged private savings, can the state suddenly change the regulations? What about the protection of trust?»
Politicians are critical, as the NZZ also reports. Sarah Wyss, a member of the Basel Social Democratic Party (SP), says that occupational and private pension provision cannot be compared, and that they are different systems. The third pillar serves personal savings and is important for small and medium-sized businesses. There are more sensible ways for the federal government to generate new expenses than to rely on private retirement savings. The FDP and the SVP make it clear that they oppose higher taxation of capital withdrawals in occupational and private pension provision. And center group leader Philipp Matthias Bregy criticizes the rule change in the middle of the game, and that they want to sip on the saving, self-responsible middle class, as quoted by the NZZ.
The FSD acknowledges that it remains to be clarified whether 3a capital withdrawals could be treated in the same way as those from the second pillar, and finally the financial implications for the cantons, which would also be affected by this measure via the Tax Harmonisation Act, also need to be clarified.
Pension funds also criticize
For pension funds, it is clear that: «this measure is going in the wrong direction,» explains Oliver Bienek, founder, CEO and member of the board of directors of Liberty Vorsorge AG. He points out that the old-age pension system is already suffering from demographic change and low interest rates. He points to the so-called replacement ratio, which is steadily declining. This indicator shows how much of the salary from the time someone was still working is covered by pensions after retirement. For the replacement ratio, pensions from OASI and pension funds are added together. And Bienek continues: «In order to be able to continue the standard of living we have accustomed to in retirement, we also need private pension provision, for example by means of the tax-supported pillar 3a. The Federal Council’s plan, however, would make pillar 3a significantly less attractive,» he warns.
Federal Council wants to send regulation for capital withdrawals for consultation in 2025
The Federal Council intends to submit the relief package, including the regulation for capital withdrawals, for consultation in January 2025. «Interested parties will then be able to comment on the specific proposed measure, knowing the exact impact,» says the FDF.
People could have the last word
In the light of the results of the consultations, the Federal Council wants to assess whether and in what form it will include the measure in the embassy. The package then goes to the Federal Councils for consultation. Should the referendum be held, the people will have the last word.