The Swiss government’s plan to reform the system of voluntary savings for occupational or private pensions by scrapping tax incentives has hit a wall of criticism among pension industry experts and members of parliament (MPs) fearing that the move will harm the trust of Swiss savers in the second and third pillar pension systems.
Through the government’s plan, “people who want to save extra or have saved in the past are punished”, Nico Fiore, managing director of Inter-Pension, the organisation representing the interests of Swiss multi-employer pension schemes, told IPE.
He noted that the plan reduces the incentive to pay for a pension voluntarily in the future.
Fiore added that the government’s plan could also lead to cutting the number of lump-sum pension withdrawals, in the opposite direction to the current trend that has seen lump-sum withdrawals increasing for years.
“The reputation of pension funds suffers again because lump-sum withdrawals will become unappealing,” he said.
The plan to abolish tax incentives for people saving for occupational and private pensions is part of a series of austerity measures put forward by the cabinet to save approximately CHF3.5bn from 2027, and around CHF4.5bn from 2030, based on recommendations of a group of experts.
Under current rules, the amount saved in the second and third pillars can be fully deducted from their income when filing tax returns. Taxes only apply when savers withdraw the money, and the payout is taxed at a reduced rate.
The cabinet hopes to cash in CHF250m per year through reforming the voluntary savings system. The reform will have a negative impact particularly on the middle and high earners, according to reports.
The expert group’s package of measures will be discussed among cantons, political parties and social partners. The Federal Council will then decide which measures it wants to implement and start a consultation. The consultation is expected to start in January 2025.
James Mazeau, head of retirement research at UBS, warned that it is still too early to judge the impact of the proposed measure, as the details of its implementation are not yet known, but increasing tax on capital withdrawals in the second and third pillars could make lump-sum withdrawals financially less attractive than before, but not necessarily less attractive than monthly pensions.
The choice of benefit depends not only on tax considerations, but also on other factors including the conversion rate to calculate pension payouts, the trust in the system, the willingness to pass on assets to others, and capital needs, he added.
Yvonne Seiler Zimmermann, professor at the Institute for Financial Services Zug IFZ, said that by cutting tax incentives the motivation for investing through the country’s third pillar pension system will take a significant hit.
AMAS, the Swiss asset management association, opposes the reform proposal by the government, noting that it contradicts the cabinet’s goal to support private pension provisions.
Limiting the possibilities of capital withdrawals in order to reduce the risk of poverty in old age is justified, but this can be achieved through annuitization of a minimum amount of capital, it added.
Tax incentives are a central element of promoting retirement savings. Restricting tax incentives immediately leads to a weakened pension system, according to AMAS.
Backlash from politicians
The government is also facing backlash from the country’s various political parties. Erich Ettlin, MP for The Centre (Die Mitte), said: “It would be a breach of good faith if the Federal Council were to restrict tax incentives.”
Anyone who paid into the second and third pension systems “believing that this would bring them tax advantages would feel betrayed”, added Andri Silberschmidt, MP for the Liberal Party (FDP).
Diana Gutjahr, MP for the Swiss People’s Party (SVP), said the reform would send the wrong signal to the younger generations. “Don’t save, just spend your money now.”
The latest digital edition of IPE’s magazine is now available
No comments yet