Federal savings measures - Potential tax increases

Taxes
64

I had a look into the Steuerharmonisierungsgesetz which in Art. 7 al 1 just states what is in principle subject to income tax:
alle wiederkehrenden und einmaligen Einkünfte, insbesondere solche …
aus Vorsorgeeinrichtungen …
Art. 83 BVG states that pension capital is taxable as income.

Cantons are quite free how much to tax income. So I think you are right. Thank you.

Art. 83 BVG Besteuerung der Leistungen

Die Leistungen aus Vorsorgeeinrichtungen und Vorsorgeformen nach den Artikeln 80 und 82 sind bei den direkten Steuern des Bundes, der Kantone und der Gemeinden in vollem Umfang als Einkommen steuerbar.

65

I didn’t realise that this proposed change is only for Federal taxes and not total taxes (federal + cantonal + municipal)

So just to be sure -: the proposal is only to impact the federal portion of the lumpsum withdrawal tax?

Edit -: Now that I read the title of this post -: maybe I should have guessed Federal means federal :slight_smile:

66

There is also an ecclesiastical part on the pension capital withdrawal tax. So four bites out of your nest egg. :sweat_smile:

Yes, the proposal is just for the Bund. The other actors might make their own changes, but this is neither obligatory nor excluded.

If the proposals become law, the Cantons however face higher burdens to maintain the status quo (fewer federal contributions). Wealthy Cantons like Zug might feel less pressured to generate new revenue. Cantons like GR, SZ, TI, VS und ZH already tax pension capital similar to pensions themselves. So they have less justification to change sth.

67

Thanks for clarity. I made the following table for current status. Time will tell what gets into the last column. If it would be 1.5 - 2% plus the current levels … or full gap vs income tax would be closed.

Pension capital Lumpsum Tax (federal) Annuity pension (at 5%) Basic income (annual) Total income (annual) Income tax (federal) Gap (income vs. Lumpsum tax) New Lumpsum Tax (federal)
1000000 2.3% 50000 25000 75000 1.6% -0.7% ?
1500000 2.3% 75000 25000 100000 2.8% 0.5% ?
2000000 2.3% 100000 25000 125000 3.9% 1.6% ?
2500000 2.3% 125000 25000 150000 4.9% 2.6% ?
3000000 2.3% 150000 25000 175000 5.8% 3.5% ?
3500000 2.3% 175000 25000 200000 5.7% 3.4% ?
4000000 2.3% 200000 25000 225000 7.4% 5.1% ?
5000000 2.3% 250000 25000 275000 8.4% 6.1% ?
7500000 2.3% 375000 25000 400000 9.9% 7.6% ?
10000000 2.3% 500000 25000 525000 10.7% 8.4% ?
68

The federal income tax has a very strong progression: It doesn’t really exist for incomes below ~80k CHF and only really kicks in above ~130k CHF. At assumed 5% CR that is far in the seven-digit territory (as your table shows).

Yet, I am sure any change would have to increase taxation for any mid-six-digit amount quite a bit, otherwise it would only hit very few people (and maybe even generate less income taxes as per your example).

Also: What kind of net worth and especially capital withdrawal are you personally aiming for? I thought my examples are showing my privilege, but you hit the ball out of the park with your assumed ranges. I myself expect an eventual capital withdrawal in form of WEF of about 1.25 Million CHF, or at least I did so far.

69

To be honest, i just selected sum numbers because I wanted to understand the full impact of this change.

If we assume salary of 100 K at age of 25 and that increases by 2% until age of 65. The 12% contributions to 2nd pillar (including employee and employer) would end up with final capital of 1,000,000 CH with 1.5% yield. And 7 K contribution to 3a with 3.5% yield would result in 600K. This adds up to 1.6 Million. These numbers would be higher if employer contribution is higher or if interest rate on 2nd pillar is good or if 1E plans are offered.

I assumed that all money is withdrawn in one shot. I added 2nd and 3a because i think in the end this whole staggering thing would go away.

So i just said okay, what if someone makes 5 times of that , then they would end up with 5.5 million. I know people with income in both spectrums, so I wanted to look into all of it.

I would be happy if i end up somewhere in middle. Really depends how long I am employed. Rest was only for the mathematical purposes as i did not want to exclude people on this forum who might have even higher incomes :slight_smile:

What makes me surprised the most is that proposal was made about taxation on pension funds. These funds are already not able to give good returns to employees. We have long way to go to catch with NL etc. and now we are thinking of taxing more the already low yielding funds. Not sure why income tax was not considered which has much more impact. CH is often applauded for forced savings which makes it mandatory via pension laws which eventually should support people in retirement. And then the committee goes after the forced savings where people do not have much of a choice. Whatever the pretext, still is a bit strange.

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70

I would not be surprised if this tax is going to impact mostly the people with high capitals. Someone below 1 million in capital is already taxed higher than income taxes. So any increase for them would not make sense. But based on your other calculation, it seems there are not many people with high capital anyways. This is a bit confusing…

71

I agree, the more I look into it, the less sense this makes. Equalizing taxation between capital withdrawal and annual pension on federal level is a really odd thing, would be much more logical in certain cantons. Either they really only target very high capital withdrawals, or they mean something different than their statements imply to me.

Anyway, I close this topic for me for now. I concluded that I will still buy into my pillar 2 with a 1e solution this year, and then reassess based on an actual specific proposal and the political process next year.

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72

Other cantons have different non-income basis of taxation.

For example, in my Canton, I was planning for around a 7% tax on the capital. If this changes to an income basis of taxation and goes to, say, 28%, that would be 4x the tax.

So, as long is only the Federal tax treatment changes, I’m not too bothered. If the cantonal tax also changes - then this would be a significant impact.

73

Earlier I thought we are talking about total tax. But later it appeared it’s about Federal tax on lumpsum

I made the following table to compare situation for federal, as it should be universal across CH

Table

74

I found

It details how this is calculated today on the federal level and in each canton. The document is in German and French (each canton in their main language, except TI which got French :sweat_smile:).

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75

Thanks for sharing

The bund tax rule equates to

  • assume the withdrawal made is like income
  • Apply 1/5 of the income tax rate.
  • Since income tax rate for incomes above 783,000 CHF is 11.5%, the federal tax for lumpsum is 2.3% for any such withdrawals
  • For lower withdrawals, a different rate would apply

If tax rule were to change, it appears Federal rule might get closer to what ZH is doing for cantonal rules. And hence the calculation method would need to change. Rather than applying a multiple to tax rate, a multiple to „deemed income“ would need to be applied.

76

Very interesting thread. May I suggest that we change the topic title? Most of the conversation here is about the proposed increase of the Pillar 2/3 withdrawal taxes.

Besides, the original title was inaccurate anyways: they don’t actually propose savings, they just want to slow down the rate of growth of expenses (with these measures they’ll still spend more in 2027 than they do now).