I will continue to contribute until there is actual confirmation that there will be a change and that it is bad enough to stop.
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I think you are misinterpreting the text.
The text says that Federal Government will adjust their proposal based on responses from consultation.
I think it means that Federal tax on withdrawals up to 100,000 will remain as they are today. And for the higher amounts they will be changed.
They are not comparing things versus tax savings at time of contributions because thatâs different for everyone depending on marginal tax rate. The good thing about this change (proposed) is that itâs not linked to income of the person at time of withdrawal . Itâs mainly linked to amount of withdrawal.
How I read this is that unless people make huge withdrawals from 3a and kind of make 100K per year , the 3a system will not get impacted by this change. Since 3a doesnât come up with annuity option anyways, this makes sense because no one is benefited âunfairlyâ at this moment too.
However for 2nd pillar, govt believes that lumpsum withdrawals are benefiting people versus the ones who take annuity. They also believe that people with bigger amounts in 2nd pillar benefit more. So I think the federal rate change for higher amounts (which will mainly impact 2nd pillar) will achieve that objective.
I am not saying it makes sense but thatâs how I read the text. In reality 2nd pillar tax for ZH can be very high (adding both cantonal & federal) if you have large 2nd pillar. This might discourage voluntary payments into the system because the interest on 2nd pillar is already low for certain funds
Imagine 1.5% interest in 30 years would end up meaning only 0.5% effective interest if withdrawal tax is 25%.
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What is not clear to me is what exactly is the new proposal for Federal lumpsum tax table and if itâs finalized or not.
Previous table was here which shows that increase of federal tax rate will up to 5% depending on amount. The table goes to 7.2% and current maximum rate is 2.3%
P.S -: folks with 1e would definitely have a negative impact because 1e can only be withdrawn as lump sum. But all money (1e + base plan) needs to be withdrawn in same year
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If you donât trust the government to work on behalf of people who vote for them, then yes you should not lock the money
But if any place in world can claim to have trust in government, itâs Switzerland
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LOL
âOK, we wonât punch you once a day every day, only 5 days a week, good?â
Still unacceptable.
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Yes. Yes, I know. I am just annoyed.
Maybe thereâs someone mathematically inclined who can give a formula to calculate the % return required on the Pillar 2 income for the proposed taxes to equal the tax deduction you got on contribution. i.e. break_even_rate = f(marginal tax rate, amount in pot now, years until withdrawal)
I think first thing we need is to understand if we should start looking into marginal withdrawal rates rather than average withdrawal rates
So far we have always been looking at average withdrawal rates. But the right way to judge if voluntary payments make sense, we need to have an idea of what the last layer of money going to incur in terms of withdrawal tax
Hence it would be good to know where is the actual table with right slabs. I think the table shared above is estimating the average rate based and all the math was done behind the scenes. Am I right @1742 ?
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You can work it out by looking at delta tax over delta withdrawal.
For example, looking at 5M vs 4M, you have (342-267)/1000 = 7.5% marginal rate (on the 1M marginal withdrawal). If we assume a similar amount for Gemeinde+Canton, then we have a total of 15% withdrawal tax.
So if we assume marginal tax rate of 40% and 15 years until withdrawal, that gives a 6.8% rate of return.
So with those assumptions, you lose out on taxes if Pillar 2 performs better than 6.8% per year. Obviously, there are also wealth tax and dividend taxation to take into account too. We can call it 7% for good measure.
Iâd be OK to invest on that basis: you could call it a hedge of sorts. If Pillar 2 under-performs, you get a tax benefit. If it over-performs, you lose out tax-wise, but make up for it in investment gains.
Under the old measures, youâd be looking at a investment return hurdle of around 10%.
To rephrase, are you saying: âyou should return at least 6.8% annualized to beat the tax saving?â (seems pretty high, esp. risk free)
I mean, if it earns more than 6.8% per annum, then you end up paying more tax when you cash out the Pillar 2 compared to the tax you saved when you contributed.
Now S&P500 did over 100% in the last 5 years (average 15% pa, or 12.5% in CHF terms), so if it keeps doing that youâll pay more taxes, but you probably wonât mind 
Obviously this impacts people who either have their money in VB where they can get stock like returns or are with PFs like UBS who give decent returns.
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Itâs only possible if the marginal tax rate on lump sum is higher than the marginal tax rate at contribution, right? (assuming 100% of the gain was capital gain, and that youâre able to get at least the same return in post-tax investments, and not taking into account wealth tax).
No! [Edit: I was wrong. see post below]
Letâs say the marginal tax rate benefit you get at contribution is 40%. And you contribute 100k and so save 40k of tax.
Letâs say the capital tax at withdrawal is 15%.
But assume over the 15 years of investment, the 100k grows to 1000k. When you withdraw this and pay 15%, that becomes 150k of tax.
You paid 110k more in taxes compared to just holding the 100k investment outside of Pillar 2.
You pay more in tax, but you still end up with more money.
Itâs a multiplication and multiplications are commutative.
With t_{income} the marginal tax rate at contribution, t_{withdrawal} the one at withdrawal and r the rate of return, we get:
- pre-tax investment: Contribution * (1+r)^{15} * (1 - t_{withdrawal})
- post-tax investment: Contribution * (1 - t_{income}) * (1+r)^{15}
As long as t_{withdrawal} < t_{income}, you come out ahead (you might pay more taxes in absolute value but it doesnât matter you still end up with more money). And you can notice that rate of return and contribution amount donât matter for the decision.
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Thereâs still a difference in that you are taxed at withdrawal on capital gains made in the 2nd pillar while youâre not taxed on dividends nor wealth.
I think itâs an optimisation on what to have in the 2nd pillar that is left to pension funds, employers (as they choose the pension fund for their company) and individuals when it relates to vested benefits. Law and the government would be hard pressed to exert fine tuning on those kinds of issues.
But itâs usually an advantage to the pre-tax investment (less leakage during growth for the same investment).
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Ah, yes, you are right, because in my example, I do not compare like with like.
I just take 100k investment inside and outside the wrapper, but if you are fully invested and donât compensate the lost tax with magical other funds then the investment of the tax makes up the difference.
The existence of the referendum helps keeping Swiss politicians from acting out their desires to a certain extent. 
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FDP has alread announced that even with yesterdayâs changes, they will still start a referendum if this passes.
And gathering enough signatures for âtheyâre gonna tax our pensionsâ should be easy. The vote on this however Iâm not so sure.
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The US and much of the rest of the world seems to have gone for a spend, spend, spend policy. So I wonder if Switzerland will go this way too.
Getting people to give up benefits is incredibly difficult and is not typically a vote-winning prospect.
Much of Europe has the âdebt brakeâ in place although many have now exempted military spendingâŠ
Well why is it in the first place just accepted that the working folk have to plug the holes for a system which is not made for eternity (because itâs based on population linearly growing)?