Im currently not working and want access to my pension funds so that I can actively manage it. I read that I can cash out the pension (pillar 2 and 3a) if I start my own self employed business. Is this a feasible route, I want access to the pension capital for my active investment and trading activities would this be allowed?
thoughts on the idea or advise please?
No
No
Terrible
Do literally anything else
I am not sure if you are trying to find a creative way to get money out of pension fund or you really want to start a business.
Let’s for argument sake assume that you really want to start a business of investing. I would like to point out a few things
Realistic returns -: funds invested in vested benefits can be invested into different types of low cost investing schemes . If you would invest it yourself into capital markets, what is your likelyhood to do a better job?
Taxation -: you would need to assume you would be considered professional investor and hence a different taxation would apply. Capital gains tax on your investments can be very big.
Classification -: pension funds withdrawal are supported to start a business. However I would expect there is some sort of regulation around what is considered a business. A business have clients and needs for capital and it generates some sort of product or service. If you do not intend to have clients then I don’t think this activity can be classified as self employment/ entrepreneurship
Qualification -: to start a financial business , you would need some sort of certifications to even be allowed to start a service like this. Do you have such certifications?
thanks for the reply.
A creative way would be to set up a cheap ice cream business, cash out pension for it, shut down main operations and use the funds for something else (does one need to pay back into the pension fund if main business ceases?). Instead I want to set up a legitimate personal investment business to look after my own wealth from the very beginning.
Im aware of the taxation and investment returns risks thats not an issue (the whole point of setting it up myself is that I can generate greater returns myself). The classification part here is a bit vague, who would I need to contact to clarify this? I see an own investment/trading business as any other business with risk, rewards and and literal trading counterparts. Regarding qualifications, happy to to do more.
Lots of speculative answers suggests this isnt possible to do but nothing concrete
I would recommend to check with someone who is self employed. Perhaps they know the rules.
No, it’s illegal and you can have a lot of problem.
Here an exemple:
Ms C was a financial advisor in a banking establishment. On December 31, 2021, she ceased her salaried activity and set up on her own as a consultant. In accordance with article 5, paragraph 1, letter b, LFLP (self-employment), on February 5, 2022 she cashed in her vested termination benefit, which amounted to CHF 500,000. The annual tax on the capital benefit was definitively determined and paid.
Contrary to her declared intention, Mrs C did not become self-employed and founded C Consulting SĂ rl on January 1, 2022.
What are the tax consequences of Mrs C’s actions?
The person was subject to the obligation to be insured under the BVG scheme without interruption. It must therefore be assumed that the withdrawal of pension benefits was improper. The funds must therefore be returned to the pension fund. Otherwise, they will be taxed in accordance with the ordinary procedure (see also Federal Court ruling 2C_156/2010 of June 7, 2011).
In short, the conditions for withdrawing pension assets are strict, and should only be used in cases provided for by law. Otherwise, you accept the risk of having to repay the amount of the credit AND of being taxed not at one-fifth of the rate provided for in the tax schedule, but at the normal tax rate.
well this example is because Ms C set up a sarl and not self employment so did not follow the rules
Exactly. But that’s the case with your first hypothesis. You want to withdraw your pension and invest it yourself in securities that you think will perform better.
As for your second example: setting up a self-employed business and investing the rest in a trading activity, that in itself amounts to the same thing. From the point of view of your canton’s tax authorities, if all (or a large part) of your pension funds are not invested in your self-employed activity, then you’re in the wrong.
Then, if it’s thought that you’re starting up your self-employed business and then bankrupting it after a few months, the problem is the same. Depending on how you look at this project, it’s also possible to argue the opposite, i.e. that you deliberately took your money out and invested it in the stock market yourself. How do you prove it? The tax authorities simulate the evolution of your assets and compare previous tax returns. If your net worth has risen sharply, and your securities have also risen sharply (more shares), the authorities will ask you some questions. If they’re not convinced, they’ll investigate further if necessary.
I’m not giving you any advice, just the risks you may face. If you want to go your own way, then I advise you to make an appointment with a tax advisor (lawyer, other) to plan your project and see if there are any solutions or, on the contrary, if you’ll lose out.
Here are some other variations for Mrs C:
Variant 1
Ms C became self-employed on January 1, 2022. On May 31, 2022, she transformed her sole proprietorship into C Consulting SĂ rl with retroactive effect to January 1, 2022.
Variant 2
Ms C went into business for herself on January 1, 2022, and was an immediate success. Surprised by the high fees for the 2022 financial year, she decided on February 15, 2023 to convert her sole proprietorship into a C Consulting SA with retroactive effect to January 1, 2023.
Variant 3
Mrs C went into business for herself on January 1, 2022. As the volume of consulting mandates does not reach the expected level, she ceases this activity with effect from January 1, 2023, and resumes salaried employment in the same field as in the past.
Option 1
The person has been subject to compulsory BVG insurance without interruption. It must therefore be assumed that the withdrawal of pension benefits was improper. The funds must therefore be returned to the pension fund. Otherwise, they will be taxed in accordance with the ordinary procedure (see also Federal Court ruling 2C_156/2010 of June 7, 2011).
Option 2
The withdrawal is not abusive. The pension benefit is subject to annual tax and must be taxed according to the specific pension scale (art. 38 LIFD).
Option 3
The withdrawal is not abusive. The pension benefit is subject to annual tax and must be taxed according to the specific pension scale (art. 38 LIFD).