I moved the discussion to other post.
But it is not only for 3a. It is for any capital withdrawal from pension assets
It kinda does look like that doesnât it? Not exactly, but close? Or are we missing something? Can it be that bad?!
I too am wondering if in this scenario the restrictions outweigh the benefits of the 3a for a high earner.
@Abs_max I donât understand the Fictitious Income column in the Proposed Federal Tax table, but do get the overall point that taxes can, no, will be higher (whatâs new under the sun?) 
In new proposal there is calculation which goes like following
Letâs say your income is 100.000 CHF and you withdraw 300,000 CHF from pension assets.
So your federal tax rate for capital withdrawal would be calculated as follows
- fictitious income of 300,000 * 5% = 15000
- Other income = 100,000
- Total assumed income = 115000
- For 115000, whatâs the applicable federal tax rate as per current law? Letâs say X%
Now this X% would be your ânew â capital withdrawal tax
In todayâs law , there is no real relevance of your current income but in future it would be relevant
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Retired people living of their savings, with low capital income, and with no pension income yet. State pension usually starts with 65.
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So basically the first column and few rows in my table . Thatâs true.
This article is deceptive. I donât have access to the full Zontagszeitungâs article, can someone tell me if they provide more data, including more salary ranges and if they precise that/if the part of taxes presented (CHF 6580 current, 17800 future for 350k withdrawal and 140k income) is indeed federal only?
This is the name of the article:
Now the Federal Council wants to hit the middle classes in the wallet
Note the focus on the middle class.
A new calculation method envisages that the tax burden will depend on income, which will primarily affect the middle class and high earners. For example, the tax for high earners could quadruple, as reported by theSonntagszeitungnewspaper.
But hey! Itâs actually middle class AND high earners (no big surprise). And the example they provide of quadrupling the current withdrawing tax? For high earners. What gets anchored in my mind is x4 but if I am middle class, thatâs not the number that should affect me (donât take me wrong, x2 or x3 would have a significant impact but the article is written deceptively anyway).
The newspaper gives the following example: Anyone who earns CHF 140,000 and has CHF 350,000 paid out will pay CHF 17,800 instead of CHF 6,580 in future.
I have no information on those numbers. There are cantonal and municipal taxes on 3a withdrawals, is that number only for federal taxes? Is there an impact expected on cantonal and municipal taxes? Is the income considered by person or is it family income in the case of married couples? I donât know.
On top of that, an income of 140k CHF isnât middle class for single people. The Federal Office for Statistics defines the middle class as earners of between 70% and 150% of the median equivalized gross income of the previous year: Middle income group
For 2022 (last data Iâve easily found), the higher limit for single people was 110k (118k if the monthly salary is based on 13 salaries). It is solidly middle class for couples with 2 children, though.
All in all, I donât have usable data and the numbers presented only partly apply, in the best case, to the category of people they draw attention on in their title.
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So how does it work if I retire at 55 and start withdrawing 3a accounts at 60 with no other income than dividends from investments?
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@Wolverine sensationalist journalism aside, the essence still is higher taxes on the 3a which makes it more gray with regard to how much itâs actually worth it considering it is not liquid. Iâd estimate tax saving vs projected growth vs salary + tax upon withdrawal. If the numbers are above ~5000CHF in the negative I may even consider stopping funding the 3a⊠Edit: to be fair, given Iâm pessimistic on pensions anyway I already consider the 3a and the 2nd pillar a bonus, not to be counted on, so anything gotten after tax will be good.
@Cortana doesnât it stand to reason they will most likely consider your dividend incomeâŠas income as they do already and tax you accordingly when you withdraw?
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Dividends are also income. Whatever goes into your tax return as income is âother taxable incomeâ in table above
But one can argue if you retire at 55 , then your dividend income should be substantial . Or else how are you going to cover costs?
This might be more problematic for dividend portfolio investors vs . Folks who have higher portion of income coming from capital gains
Looking at pension assets in Switzerland , they are worth 1.2 trillion. I think for lot of people , pension accounts are their biggest assets
Switzerland has always attracted high earners. So itâs not wise to call âhigh earnersâ as somewhat easy target.
Tax increase is a tax increase. Where this ends up ? Time will tell
But I think the calculator would become more interesting because effective lump sum rate would increase 5-10% with this change
And once again, I am getting even more certain that staggering would also disappear at some point
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Well obviously, but weâre not most people here. The law needs to work for the many, weâre the few.
Anecdotally I havenât met a single person into investing who doesnât look at pensions as âIf I get it, great, if I donât, oh wellâ.
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If you retire at 55 , then your wealth should be substantial. You could argue that this new tax provides an additional reason why one should focus on capital gains instead of income from dividends or interest payments. At least for the period when this tax is relevant for the individual.
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WowâŠ
that is strange.
Not a single person you know have sizable amount in 3a / 2nd pillar ?
On average, 7.2 Million people above age of 18 exist in CH. This means 167,000 CHF per person on average is their money. Higher the age, higher this amount. I do not understand how come this is not substantial.
2 million in taxable accounts (generating around 40k in yearly dividends) and the rest in retirement accounts for example. Income would only be 40k (taxable income even lower), so this change of policy wouldnât really affect FIRE people?
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who knows future version of this would also start including overall wealth
Current proposal might not effect FIRE people if they fall in bucket you mentioned and they can still stagger their 3a withdrawals
However, I personally think, it would affect everyone because I believe following would also come soon . This is not said in current proposal but I think it would come
Speculation -: withdrawals from Pension assets would always be considered accumulative which means if in Yr 1 you withdraw 200K and 5 years later 1,000,000 CHF then the second tranche will have higher tax because the total withdrawal would always be accounted for.
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Thatâs not what I said, knowing a handful of people who are 40 +/-5, push >=1mn in their brokerage accounts and are looking for early retirement, they do have fully-funded 3a/ISAs and most definitely decent chunks in their employer pensions. What I said was they donât consider these assets particularly interesting or to be relied upon, possibly because they are illiquid and out of reach for many years.
A friend fitting this profile has a 3a with a bank, earning 1% year. I asked how they missed putting it into an investment account and the response was âWell, I wonât see this money for ages anyway, I just put it there for the tax creditâ. For me itâs still puzzling because itâs potentially serious money left on the table, potential for tens of thousands of opportunity costs.
Of course itâs still anecdotal, over glasses of beer so to speak!
Edit to respond: it could well be substantial, back of the envelope exercise would put my example having ~350k in their 2nd pillar and ~150k in their 3a, but for the purposes of early retirement in a country costing 3-4x less than CH they just donât consider it. If one can live very decently with 30k/year, like one can in parts of the Balkans, Eastern Europe, or even goat villages in Greece then the 350k in a 2nd pillar seems very far away to really care/worry about! Letâs not forget that for EU people the second pillar remains illiquid until 59 years of age? Just remembered another person I know, very high earner, ZH IT (surprise?) and financially-literate. They donât even have a 3a, reasoning being for them the lack of liquidity outweighs the tax credit.
Edit 2: more broadly food for thought, maybe I need to read up on older threads on it, perhaps itâs interesting to examine the scenarios where maxing or even having a 3a isnât that good of a deal.
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Got itâŠ