The plans to end the special tax treatment for lump-sum withdrawals from the 2nd and 3rd pillars originate from the external group of experts headed by Serge Gaillard, as «Sonntagszeitung» (behind paywall) wrote. The task of the “austerity commission” is to structurally adjust the federal budget. «The review must cover all federal expenditure» according to the specifications.

According to the group of experts, the proposed tax reform should lead to additional revenue of around CHF 250 million. The consultation process could begin in 2025, according to the report.

The tax burden on payouts would no longer be based solely on the accumulated capital, but would also take into account the income from the last year of employment. This would particularly disadvantage middle-class and high earners in terms of taxation.

Swiss Insurers Association takes a critical view of plans

However, the financial sector is clearly opposed to the plans. "We view the proposed higher taxation of lump-sum payments from the second and third pillars very critically", writes the Swiss Insurance Association (SVV) on request. "Such a tax increase contradicts the actual intention of reducing the federal budget's spending problem and sends the wrong signal to politicians."

Furthermore, the proposal represents a weakening of the three-pillar system, it continues. "In particular, the measure would reduce the incentives for very important voluntary retirement savings." The association refers, for example, to the latest pension barometer from Raiffeisen Switzerland. According to this, 58% of 18 to 65-year-olds see tax advantages as an important reason to invest in private pension provision.

"It is clear that in view of demographic ageing, private saving will become even more important in the future than it has been in the past," it continues.

Private pension provision is fundamental

"In view of the discussions surrounding the BVG reform, it is certainly not helpful to reduce the attractiveness of private pension provision now by making changes to taxation," says Karl Flubacher (pictured below) from VZ Vermögenszentrum.

Private, self-directed retirement planning through voluntary contributions to pillar 3a and pension funds is fundamental in Switzerland - and has been provided for by the state to this day, the expert emphasizes. Higher taxation could have a massive negative impact on these savings processes.

(Image: VZ Vermögenszentrum)

The legislative amendment under discussion would affect direct federal tax. However, it is often overlooked that pension fund pensions are taxed as income for life by the cantons and municipalities after retirement. "This also applies to the interest and dividends earned on the pension capital withdrawn after retirement," Flubacher continues. "In addition, the capital from pillar 3a and the pension fund is subject to wealth tax - also for life."

"The pension gap will not close in the coming years. This is further uncertainty for people who are worried about their retirement provision," says the VZ Managing Director for Northwestern Switzerland and Western Switzerland. What would be desirable at the moment is more security in order to save money for retirement - and not the other way around.

Poverty trap looms without savings

"Without individual savings, a significant proportion of the population will end up in the poverty trap after retirement", says Florian Weigert (pictured below), Professor of Financial Risk Management at the University of Neuchâtel, is convinced. He is convinced that the planned measure would not improve tax justice in the country. "Above all, it disadvantages middle-class people who rely on private pensions with continuous savings in retirement."

(Image: www.florian-weigert.com)

The plans would be tantamount to changing the rules during the game. "Taxing amounts that were previously declared as tax-free is unacceptable and constitutes a clear breach of trust."

It is also uncertain whether the target of expected revenue of CHF 250 million per year can be achieved. Especially if the majority of savers turn their backs on pillar 3a.

SBA wants to join the discussion at a later stage

The Swiss Bankers Association (SBVg) notes that the political process to restore balance to federal finances is still in its early stages. . The Federal Council has only defined the key figures for the federal budget relief package. The SBVg will wait for the measures to be developed and will therefore “contribute during the consultation process”.