Switzerland’s pension system has three elements. The first is a state pension linked to the number of years worked. This is funded by a tax. The second is a salary based scheme funded by salary deductions, and the third is an optional element known as the third pillar. Contributions to all of these are tax deductible, providing an economic incentive to pay into them. This week, the Federal Council announced a change to third pillar contributions, reported SRF.
The change allows missed payments to be made in later years, which means less of the tax sheltering benefit of these payments is lost if a payment is missed.
From 2025, anyone who has not paid the maximum amount, which is currently CHF 7,056 per year, into the third pillar pension in previous years will be able to fill gaps in the future without losing the tax benefit. Gap filling will be possible for a period of 10 years. However, only gaps occurring after 2024 will qualify and the tax deductible payment in any given year cannot exceed a sum equal to two times the current allowance.
The change will benefit those with gaps and who are able to live without the money – funds put into tax protected pensions schemes generally stay there until retirement.
At the same time, the change will reduce tax revenues. The federal government expects foregone receipts to be between CHF 100 and CHF 150 million at a federal level and between CHF 200 and CHF 450 million at a cantonal level.
The aim is to incentive higher saving in order to lighten the load on the welfare system – many retirees with few or depleted savings end up on welfare. Somewhat contrary to this incentive the Federal Council will soon discuss taxing third pillar pensions withdrawals more heavily at the point of retirement. However, if the exit tax rises too far some might not bother with third pillar pensions at all.
More on this:
SRF article (in German)
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