The currently discussed proposal to increase pillar 2/3 taxation (retroactively) made me thinking. I initially thought I should stop contributing and cash out at the earliest possibility. But after listening to a Rational Reminder episode where they discussed a similar thing happening in Canada, I’m not so sure anymore. A host made a good point that a dick move like that may make one or another savings scheme more advantageous in the future, so it might be best to spread the eggs across different baskets. So, best to retain a sizeable pillar 2 and to keep contributing to pillar 3 the whatever small amount they allow us.
What are other things one may do? I keep hearing that the socialist party wants to tax capital gains. Would occasionally selling and re-buying be a good hedge against this? Any other ideas?
Normally any capital gains legislation should mean historical gains are grandfathered and only future gains are taxed. It would be ridiculous to tax all the gains someone have made over the years.
Yes, in a democracy laws never apply retroactively, and this restriction is very often protected by a country’s constitution as, if allowed, would open the possibility for vindictive/targeted law-making by a malicious government. I wouldn’t worry one bit.
Exceptions include freak times in history when atrocities were technically legal when and where they were committed (key case in point the Nuremberg trials).
Even in cases of taxation there’s usually a window between a policy announcement and a new law being formally signed and published in the state journal/gazette. In, and only in, that window a law may be applied retroactively but that doesn’t catch historical gains.
Not a lawyer but my father is and we’ve discussed the spirit of law-making at length over decades.
We already have a lot of uncertainty to worry about (interest rates, inflation, equity risk, geo politics, job security).
My normal thinking is that when it comes to taxes, I do not speculate. I assume the current tax regime will be the regime of future. If something changes then we change / not change our strategy
But how much to put in 3a, 2nd pillar and taxable income shouldn’t be based on speculation of taxes. It should be driven by financial planning for the individual and various benefits these schemes offer.
Lastly for argument sake - let’s say tax regime changes. The main reason would be that most Swiss people support it (due to direct democracy). This also means it would benefit relatively less richer part of society or else the vote won’t pass . This also means if it would negatively impact you, you would already be rich . It wouldn’t be such a big deal
This not all eggs in one basket idea starts and stops at my overall asset allocation. For me, that means not everything in stocks, and what is in stock not all in one industry or geography.
I don’t consume any finance blogs, podcasts or Youtubers etc. so maybe I miss the point, but I wouldn’t base long-term investment decisions primarily on taxes, let alone on potential future changes that you can only speculate about.
Today, there are decent options to invest in stocks in 3a, and one-time tax deduction and tax-free dividends make it an quite attractive vehicle for this part of my assets. Tax advantages over-compensate the fees and limited flexibility. I can’t see any change getting through big enough to turn this over. But then, I do have more stocks outside of 3a then inside, simply because the pay-in is limited.
Similar for pillar 2 buy-ins, if you treat it like fix income. I get a stable return, way above gov. bonds or money market, and that’s not even accounting for the one-time tax deduction. The regular contributions, I can’t change them, anyway as long as I’m employed (beyond paying a few % more or less).
If there are any changes on taxes or rules, they will come with some warning, so there’s time to assess the impact and react as needed once / if the time comes. Whether it’s to withdraw pillars early or realize capital gains in private assets.
Maybe not the answer or ideas you’re looking for, but my strategy is to not worry about it for now
Well, if you read about the proposals for the 2/3 pillars tax increase, they are retroactive in nature. So I now wouldn’t be surprised if they pull a similar trick if and when they introduce capital gains tax or gods know what other weird tax.
It’s a easier to increase a tax which already exist but it’s not so simple to introduce a capital gains tax on equities retroactively. It would completely destroy credibility of Switzerland.
Remember equity investors are not just Swiss residents. It impacts global investors too.
Pension assets are only for Swiss residents. Lumpsum tax already exists and if it’s increased a bit , it impacts on Swiss residents.
In that case, I did, actually. And it was just that, a proposal, which is now being challenged. You can agree or disagree with it, on principal or out of self-interest, but I wouldn’t call it a “dick move” or “pulling tricks”. It’s just how politics works, and in most cases, it still works well in the end. Committees or individual parties float their ideas all the time.
My point was, I wouldn’t let it affect my financial strategy. Once a new rule is in place, you can adapt or fine-tune, but it hardly has any impact on the bigger picture.
I think Switzerland is a bit unique in this regard in that the danger probably comes more from the people than from the government. A well-marketed initiative can go very far “quickly”, and there are essentially zero guardrails.
To the best of my knowledge, non-retroactivity is not enshrined in the constitution, and even if it were, it can always be exempted from/overwritten with a simple 50% majority of the population and cantons.
2nd and 3rd pillar are just vehicles to save tax. They are not even good doing that job, as capital gains are free of tax in Switzerland.
The other “benefits” are really only for people who do not know how to save for their elder days. And those people can fuck up the 2nd and 3rd pillar plans too, as there is a golden parachute, the supplementary benefits (AHV Ergänzungsleistungen).
The change would not be retroactive; it is applied when you take out your money. It is always a question of perspective and the taxman’s perspective is to tax when you get the cash.
Personally I did never trust those systems, took some time off out of Europe and cashed my 2nd and 3rd pillar completely at age 51.
The only real way to hedge against political risks (of which taxation is one) is to geographically diversify. Since you are taxed in your place of residence, that primarily means getting yourself into a position where you could survive and thrive in another political jurisdiction. But to a certain extent, it also means holding wealth/benefits in multiple jurisdictions.
Meanwhile in Switzerland, Zurich voters rejected tax cut for corporates. The proposal was made to prevent the companies from moving away from ZH to low tax cantons. Voters said NO
To be fair: There were good reasons to vote YES or NO. But that would be political and I don’t think it’s a good example for this thread either, because it has nothing to do with tax uncertainty.
Completely agree. Lucky I travelled a lot and learned languages when I was young. After 60 it is quiet difficult to learn a new language or to adapt to other cultures. I would never live in a country where I don’t understand what people around me speak.
I live in Switzerland only a few months a year but it is my tax residency and I could change that at any moment. A capital gains tax would definitively be a reason to leave. I don’t care anymore about 2nd and 3rd pillar taxes.
Voters are bastards and I am one of 'em. I can hardly remember a time when I voted with the majority, I am a real contrarian.
I just shared it as I think it might impact some companies which are based in ZH
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