Publications
Third Pillar: Between Tax Opportunities and Uncertainty Over Taxation
From 1st January 2025, a major reform of the third pillar has come into effect, introducing the possibility of making retroactive buy-ins.
Switzerland’s pension system is based on three pillars, each playing a key role in securing your financial future in retirement. Among them, the third pillar, although optional, is a strategic tool for supplementing individual pension planning. For a long time, it has benefited from attractive tax treatment to encourage savings. However, the landscape is evolving: while new incentives are being introduced, a proposed increase in taxation on lump-sum withdrawals from the second and third pillars is raising concerns. In this context, how can you optimise your pension strategy while anticipating future changes?
From 1st January 2025, a major reform of the third pillar has come into effect, introducing the possibility of making retroactive buy-ins. Contrary to common belief, these buy-ins do not apply to the past 10 years but rather to the upcoming 10 years. This means that policyholders will be able to make up for missed contributions in future years, within the annual limit.
This reform presents a unique opportunity for policyholders to maximise their retirement savings while benefiting from an immediate tax reduction. It aligns with a broader strategy to strengthen individual savings, which is crucial in light of demographic ageing.
At the same time, the Federal Council is considering increasing taxation on lump-sum withdrawals from the second and third pillars. Currently, these withdrawals benefit from a reduced tax rate, often significantly lower than the rate applied to annuities. This disparity, perceived as a tax distortion, encourages many policyholders to favour lump-sum withdrawals. The proposed reform aims to harmonise taxation between lump-sum withdrawals and annuities while strengthening public finances.
If this reform is adopted, it could have several consequences:
The proposal is not yet finalised. It still needs to go through several legislative stages and could be subject to a referendum, potentially delaying its implementation until 2028 at the earliest.
Beyond individual considerations, this reform is part of a broader context. The Swiss Confederation is seeking to stabilise public finances, which are under pressure due to an ageing population and a declining worker-to-retiree ratio. Increasing taxation on lump-sum withdrawals serves two main objectives:
Switzerland’s third pillar is undergoing significant changes. The ability to make retroactive buy-ins from 2025 is a major advancement for those looking to optimise their retirement savings. However, the potential for higher taxation on lump-sum withdrawals could offset these benefits, requiring careful consideration of the best choices to maximise long-term gains.
In this context, anticipating and planning your pension strategy carefully is essential. A tailored approach, taking into account your personal situation and legislative developments, will be key to making the most of opportunities while minimising the impact of tax constraints. Staying informed and seeking expert advice can make all the difference in securing your financial future.
The upcoming reforms—whether retroactive buy-ins or increased taxation on lump-sum withdrawals—will have a significant impact on your financial planning. Understanding these changes now will help you anticipate and adjust your choices accordingly.
March 06, 2025
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