Early retirement, move to another country and pension fund withdrawal (pillar 2 and 3)

Do check and confirm with your current pension fund. They may allow early retirement from the age of 58 (regardless of where you live).

Also, keep in mind that - at least some - municipal tax administrations will allow you to file and pay tax on your lump-sum payment while still being a resident - even in cases of impending emigration.

As in: „I‘ll be moving away to another country for good in a few weeks. I have already notified your colleagues at the Einwohnerkontrolle. Could I already get a tax bill for my lump sum X to be received from my pension fund/vesting account - and could you also give me a confirmation that it was taxed already, so the pension fund/vesting account foundation does not have to withhold tax at source?“

Also seems and sounds like a bit of a grey area if not loophole? Indeed it does - but in this case it’s „sanctioned“ by your local tax authority. “I received a pension fund payout while being tax resident in Switzerland as provable by my certificate of deregistration and also the tax bill from my municipality for that particular payout” sounds much saner to me than “I was so clever to be a tax resident nowhere in the world for these four weeks last April, during which I happened to receive my pension fund payout.” If someone were to probe into it (albeit that may not be all that likely, see the NZZ article linked previously).

The foundation paying out your funds has to play along, obviously. And you‘ll be paying resident rates where you live - instead of non-resident rates at source in (presumably) Schwyz or wherever your pension fund is located. Also, you may be limited to withdrawing only the noncompulsory part of your benefits - with the compulsory part only payable out to you later, when you’ll be resident in Spain.

While I neither offer professional tax advice nor say I‘m familiar with the Spanish tax code or DTA, that’s what would assume, yes: There should be a deadline up to which you’re considered tax-resident in Switzerland and from which you are in Spain. And if you withdraw before that cut-off, only Switzerland will have the right to tax.

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Thanks a lot for your advice. I will certainly check with my pension fund & arrange to speak to a Swiss accountant to find out if I can withdraw and pay tax on my pension lump sum payment whilst remaining resident in CH. I will keep everyone in this thread informed of the outcome

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Pillar 2 was only around 500k at the start of last year, but I plan to increase that to around 1.8M over the next few years through aggressive voluntary contributions to shift my portfolio from taxable accounts to non-taxable in the run up to early retirement.

Then I will withdraw it into a vested benefits account and per my model, this will grow to just shy of 4M at the time of withdrawal at retirement age.

Compound interest will do the heavy lifting.

Isn’t there an upper limit / max buy in (total as well as per year) to P2 funds?
1.3M “gap” sounds like quite a lot to be able to fill in.

I guess anything is possible with a gigantic salary / management positions. :grin:

If you’ve been longer than 5y it’s only a total limit (missing contribution assuming you had your current salary since you were like 25yo).

Probably doesn’t make a lot of sense if it makes your marginal tax rate drop below the rate you’ll be taxed on withdrawal tho.

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Exactly, it is a total limit (ignoring special additional limits if you’ve been in CH for less than 5 years) so if you arrived age 50, you’d have a load of back years potentially to fill in.

You’re essentially limited by number of backfill years and salary. In practice, you’re also limited by your capital withdrawal tax rate as you could end up paying more tax if your tax savings are less than the capital taxes due at withdrawal.

By the way, if you are planning to stay in CH anyways, perhaps also worth checking if you can move to a lower tax canton.

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And having just looked at marginal tax rates (why did I not do this much earlier?!) I wish I’d started contributing to the pension fund earlier - at least to reduce taxable salary below 150k, which is the level that 13% marginal rate for Bundesteuer kicks in for families.

Quick update on the worst case scenario: I checked with a tax lawyer in Spain who explained that pension lump sums are not taxed as income, rather as ‘‘capital income’’ which attracts capital gains tax at the appropriate rate. This is significantly lower than the normal progressive income tax rates.
I will be checking soon with a Swiss tax advisor to check out the viability of the suggestions of NZZ & San_Francisco - will update when I get more information.

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Thank you for sharing

Was he / she referring to “renta del ahorro” tax category and tax rates 19- 28% ? link

If so it would confirm it is cheaper to withdraw whilst still a swiss resident - by becoming self employed, for example. Added benefit you can withdraw the mandatory part with fewer restrictions

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Yes that is the tax category