Background: why is taxation being reconsidered?
The government needs more money because spending on retirement provision (AHV/AVS), the armed forces and other areas is increasing sharply. A group of experts has therefore drawn up proposals for the Federal Council on how the federal government could cut costs and generate additional revenue. From a tax perspective, one proposal is being pursued: a change in the taxation of lump-sum withdrawals from pension schemes.
How does taxation work today?
Unlike pension payments, lump-sum withdrawals from pillars 2 and 3 are taxed separately from other income at a reduced rate.
The level of taxation varies from canton to canton. At the federal tax level, however, the rate is the same for everyone.
What is being proposed?
In future, the taxation of lump-sum withdrawals could become a good deal more complicated and expensive:
Simulated annual income: The lump-sum withdrawal is converted into an annual pension. For example, a lump-sum withdrawal of 500 000 francs is broken down into 20 parts (25 000 francs per year). This simulates an annual pension.
New tax rate: This simulated annual pension (25 000 francs) is added to the person’s other income in the reference year (e.g. salary or AHV/AVS pension). This results in a new tax rate, which will then be applied to the entire lump-sum withdrawal.
Removal of the special rule: Lump-sum withdrawals would no longer be taxed separately at a lower rate, but treated as normal income. Lump-sum withdrawals would therefore be taxed once in the year of payment at the new rate – together with other income.
«We recommend continuing to make contributions to pillars 2 and 3 so as not to lose out on the current tax savings.»
Impact and unanswered questions
Increased taxation: The tax burden on lump-sum withdrawals would increase for many people, especially the middle classes and people with high incomes and/or actuarial capital.
Uncertainty in the cantons: It is unclear whether cantonal and communal taxes will also be adjusted. However, a clarification from the Federal Department of Finance contains a reference to the fact that this is at least envisaged.
Risk to the pension system: Experts fear that fewer people will pay into pillar 3 or make contributions to their pension funds. This could undermine the attractiveness of good pension provision, the fiscal incentives for which are also in the interests of the state. If the result were that more people were to draw a pension instead of a lump sum, redistribution would be an even greater problem – as explained in the interview with Jörg Odermatt.
So what’s next?
Discussions and the decision-making process: The Federal Council will launch a consultation procedure in January 2025, during which citizens, organisations and parties will be able to state their positions. After that, Parliament will decide on the matter.
Possible referendum: If the bill is adopted, a referendum could be held so that the people can vote on the change.
PensExpert’s position
It is not yet certain whether the new taxation will eventuate and exactly how it would be implemented. Some politicians and parties are critical.
The cantons’ approval of such an intervention in their tax rates is also likely to be limited. Lucerne and Ticino, for example, decided to reduce their tax rates for lump-sum withdrawals in 2024.
Even if the changes are adopted, transitional rules could be introduced to protect the balances accumulated until that point. A «grandfathering» solution, under which all previously accumulated balances will be subject to the old law even after the new regulations come into force, is also being discussed.
It is clear that contributions to pillar 2 and pillar 3a will continue to be tax-deductible in future. The wealth tax exemption on such pension assets and the income tax exemption on income from such assets are also expected to be maintained.
Furthermore, it is interesting in this context that just a few weeks after the publication of the report, the Federal Council decided on the option of retroactive purchases into pillar 3a, which is expected to reduce revenues by 100–150 million francs at federal level and 200–450 million francs at cantonal level. From 2026, it will be possible to make up for missed pillar 3a purchases for the first time – preparations in this regard are already under way for our «relevate» and «Pens3a» products.
We will stay on the ball and keep you up to date with developments.
