Taxes Reduce taxes by staggering pay-outs

Plan for retirement and save on taxes: Pillar 3a, in particular, gives you plenty of leeway for periodic and staggered withdrawal.

by UBS Insights 19 Jun 2018

A tax on capital payment is levied on money paid out from pension savings in pillars 2 and 3. This one-off tax payment is made at a reduced rate and separately from remaining income. You can reduce the tax burden by staggering pay-outs, provided you distribute your deposits into multiple pillar 3a accounts during your active working life.

Breaking up progression

You can break up the progression by staggering withdrawal of pension savings over several years. As the amount that is taxed increases, so does the tax rate applied. You can break up the progression by withdrawal of pension savings over several years. Tax authorities sum up all withdrawals in a given year when calculating the tax on capital payments. This means that any potential (partial) capital withdrawal from the pension fund or withdrawal from a vested benefits account with payout of pillar 3a is also added to the annual sum. Staggering pay-out helps to reduce the total amount per year.

Sample calculation of a staggered pay-out

Starting position: a single person domiciled in Olten (SO) withdraws CHF 500,000 from the pension fund and an additional CHF 100,000 from pillar 3a.

  • Version 1: If the withdrawal is made from only one pillar 3a account, and what's more in the same calendar year as the capital withdrawal from the pension fund, then the accumulated tax burden is CHF 49,497. 
  • Version 2: If there are two pillar 3a accounts (CHF 50,000 each), a person could have the same total amount paid out over two years. Ideally, both 3a payouts do not fall in the same year as the capital withdrawal from the pension fund that comes due on retirement. By optimizing staggered payouts in this way over three years, the tax burden reduced by CHF 4,785.

Incidentally: Someone who continues to work can even wait until after the statutory retirement age before withdrawing 3a pension funds (women until age 69, and men until age 70). Otherwise 3a accounts can already be closed five years before normal retirement (women from age 59, men from age 60). This opens up further opportunities when planning for retirement.

Pay attention to cantonal differences

Tax practice in relation to pension savings is not the same in all cantons. For example, not all cantons apply a progressive tax to pension funds when taxing at the canton/municipal level. A staggered withdrawal that is too extensive may no longer be accepted by tax authorities. Find out in good time from the tax authorities in the canton where you reside.