# Exact timing of pension withdrawals and payments

So I’m trying to do the planning on retirement and when I will get pension etc. Assume you are a man who reaches pension age of 65 on December 2040.

My understanding is that for men you get:

Pillar 1: first day of the next month, so January 2041 (and you can shift -2 years or +5 years). So earliest Jan 2039, latest Jan 2046 (I believe there are no requirements to be employed to delay Pillar 1 payments - please let me know if this is wrong).

Pillar 2 (Vested Benefits): Can be drawn 5 years before or after retirement age (from 2030 5 years after only if employed). My question is does this follow the same ‘month after’ rule so earliest withdrawal would be 2041-4 = Jan 2037. Or is it your birthday, so December 2036? Or something else?

Pillar 3a: same as for Pillar 2 (VB)?

If phasing Pillar 3a over 5 years, would you then do: Dec 2036, 2037, 2038, 2039, 2040. Or Dec 2037, 2038, 2039, 2040, 2041?

Or am I being silly and can’t do maths so if you turn 65 on 30 December 2040. Can you withdraw 5 years less one day earlier, say 31 December 2035. Then each year after: 36, 37, 38, 39, 40.

This gives phasing over 6 years - whereas I had in my mind phasing over 5 years, so I’m not sure if I’m missing something?

For pillar 2 I would check with your benefits provider.

I have not checked in detail myself, but I always assumed that you can only withdraw from pillar 2 when you reach age 65 with these exceptions:

• you buy a home (for yourself)
• you become self-employed
• you leave Switzerland for good
• you quit your job and park your pillar 2 at a Freizügigkeitsstiftung (which you can then withdraw from earlier, actual conditions probably dependent on contract clauses with that Freizügigkeitsstiftung)
• your benefits provider has terms that allow you to be paid out earlier

For pillar 3a you can withdraw starting 5 years before until 5 years afterwards.

You can withdraw even earlier for pretty much the same reasons as for pillar 2 plus a couple more.

Birthday if from a vested benefits account (i.e. not retiring from pension fund, so effectively as a lump sum),. Retiring from a pension fund, can’t you just choose the month of retirement?

Anyone who believes he‘ll be able to reduce progressive tax by phasing withdrawals over 5 years in Switzerland in 2040, I‘ll bet you money to the contrary.

I was looking at splitting into 2 years: at 64 and 65. It depends on the return, but assuming I have 800k to withdraw, the plan would be to withdraw 400k at 64 and then 400k at 65.

Tax rate up to 400k is 2%.

Tax rate above 400k is 6%. So that should be a 16k saving less a bit for wealth tax and tax leakage for the 1 year it is outside the wrapper.

Now prove otherwise or show me the money!

As I understand, you can withdraw after 65 only if you continue working after 65.

But my question is what does 5 years before really mean? If you turn 65 on 30 December 2040 what’s the earliest date you can withdraw the 3a? 31 December 2035?

If you have withdrawn nothing until your birthday, what’s the latest date you can withdraw? Is it 30 December 2040? I guess maybe the provider automatically ‘withdraws’ and closes the 3a for you on this date.

Or is the by the same month after reference so, latest is 31 January 2041?

As I understand the regulation, you could withdraw it between 30 December 2035 and 30 December 2040, assuming you don’t work beyond the latter date (and ignoring practical issues due to holidays).

1 Like

As already referenced by @jay the corresponding Verordnung says “Die Altersleistungen dürfen frühestens fünf Jahre vor dem ordentlichen Rentenalter der AHV […] ausgerichtet werden”.

I interpret that your 60th birthday is the earliest day you can withdraw. I suspect that if you haven’t withdrawn by your 65th birthday, the benefit provider will approach you eventually.

2 Likes

No proof yet - but I believe most Swiss tax administrations will not accept more staggered withdrawals than partial retirement steps are allowed in pillar 2 (less than 5). They’ll tax you as if you had withdrawn those funds in the same year.

Are you saying you don’t think there’s a tax benefit of staggering withdrawals, or that when doing the staggering, you can’t spread it over more than 5 years?

There was once an opinion paper by the federal tax administration that a staggered withdrawal in the second pillar should not result in a tax advantage (i.e. unlike 3a, where they are taxed individually). I’ll add a link if I can find it again.

To me it is questionable if that is enforceable, I would be mildly surprised if they manage the necessary coordination with the cantons without use of paper forms and fax machines… But it seems to be their intent that if 2nd pillar money is for some reason paid out in staggered withdrawals, the tax is then levied pro rata to what it would be on the total amount. I’m sure there are a million loopholes and maybe it is not done at all in practice, but I’m not banking on it to be like that by the time I will reach regular retirement age. Maybe by then the fax machine mutates into a all-knowing federal AI tax overlord algorithm (FAITOA).

Edit: Link to “Kreisschreiben 41”, the relevant text (in german) is on page 4: “Dabei ist zu beachten, dass ein Bezug “in Tranchen” (Teilkapitalbezug) steuerlich unbeachtlich ist. Tritt ein entsprechender Vorsorgefall oder Barauszahlungstatbestand (mit Barauszahlungsbegehren) ein, wird steuerlich stets über das ganze Vorsorgeguthaben abgerechnet”

I remember seeing somewhere some discussions on closing this ‘loophole’ but not sure which canton that was and whether any cantons have actually gone ahead and done anything.

Even then, you’d need the canton and federal to implement to close all the the loopholes at tax and local level. And then unless all cantons do it, there’s still the option of relocation to a friendly canton - though that’s probably too much hassle to be worth while.

There is currently a tax benefit in staggering withdrawals - but as mentioned by @ChrisL above, I believe they‘ll limit that within the next 20 years.

1 Like

Ah, yes, that certainly is a risk.