The Swiss government is backing rules seemingly going in the opposite direction of tax incentives to close pension gaps, and potentially increasing levies on lump sums.
This week, the cabinet announced it had approved changes to the law regulating tax deductions on contributions to accrue private pension savings (BVV 3), to allow savers to retroactively pay contributions and close pension gaps.
The law applies from 1 January 2025, giving savers that have missed contributions in the past, insured under the first pillar AHV, and working in Switzerland, the opportunity to pay a small amount of up to CHF7,258 (€7,724) per year in the third pillar pension system, each year, for up to 10 years from the moment the rule comes into force, and deduct contributions from their taxes.
Under the current rule, savers with an income subject to the first pillar system (AHV) can save for private pensions a sum in the range of CHF2,025-7,258 per year (small contributions), and self-employed can pay up to CHF36,288 (large contributions), annually.
The government opposed the changes to the law on retroactive contributions for private pensions put forward by Erich Ettlin, the member of Parliament (MP) for The Centre (Die Mitte) party, approved by both houses of Parliament, the Council of States and the National Council.
Expanding tax deductions on third-pillar pensions means a CHF100-150m revenue loss from taxes for the federal budget, according to the government. In terms of income taxes, cantons and municipalities are likely to experience annual losses in the range of CHF200m-450m, it added.
Backing a law allowing retroactive payments of pension contributions contrasts with the government’s plan to increase taxes on savings withdrawals in second pillar occupational pensions, and in the third pillar, to cash in CHF250m per year.
The measures on capital withdrawals are currently being examined in detail, the Federal Department of Finance said, adding that tax deductions for those paying into second and third pillars won’t be touched.
The government said that it will change certain aspects of tax incentives in the second and third pillars, regardless of the changes to the law just approved on tax deductions for retroactive contributions paid in the third pillar.
It will lay out tax rules for capital withdrawals in the third pillar at the end of January, which will also apply to withdrawals of savings accrued through contributions now allowed retroactively.
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