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Introduction
Income derived from pension provision is considered taxable income. This taxation is notably set out in Articles 20, 22, and 24 of the Federal Direct Tax Act.
However, the taxation principles applicable to income from Pillar 3b pension provision include several exceptions, and it is essential to distinguish between income from annuity-based insurance (Article 22 FDTA) and capital-based insurance (Article 20 FDTA).
Capital insurance differs from annuity insurance in respect of the nature of the benefit paid at contractual maturity. Capital insurance entitles the beneficiary to a lump-sum payment upon occurrence of the insured event, unlike annuity insurance. The capital may be paid in one lump sum or in several instalments.
As a reminder, the general rule is that premiums paid by a taxpayer under Pillar 3b insurance are not deductible from taxable income. However, some cantons apply a more favourable approach, in particular through flat-rate deductions for insurance premiums.
These deductions primarily concern health and accident insurance, but depending on cantonal rules, may also include Pillar 3b insurance premiums when the flat-rate limit has not been fully exhausted.
During the term of the insurance contract, no taxable income arises for the taxpayer. Income becomes taxable only at the time of actual payment, that is, upon contract maturity. However, the value of the insurance must be declared in the tax return and is subject to wealth tax.
This article focuses exclusively on the tax treatment of lump-sum payments.
Taxation Principle and Exceptions
The first principle is set out in Article 24(b) FDTA, which states that payments arising from private capital insurance are tax-exempt.
However, there is an important exception to this principle in Article 20(1)(a) FDTA, which applies to insurance financed through a single premium. In such cases, the income received becomes taxable unless it serves a pension purpose. Therefore, income from capital insurance financed through a single premium and serving a pension purpose is tax-exempt.
To determine whether the insurance contract serves a pension purpose, several cumulative criteria must be met:
- The insurance benefits must be paid to an insured person aged 60 or over;
- Under a contract with a minimum duration of five years;
- Concluded before the insured reaches the age of 66.
This exemption therefore applies to Pillar 3b pension investments.
Life annuities are not considered capital insurance, and their tax treatment is governed by Article 22 FDTA rather than Article 20.
For capital insurance that does not meet the criteria for pension purposes, investment gains are fully subject to income tax. The taxable amount corresponds to the portion of the benefit exceeding the invested capital.
Conclusion
Decisions regarding pension provision directly influence the tax burden. Tax rules vary depending on the contractual structure: while capital payments generally benefit from an exemption, lifetime annuities remain subject to tax. It is therefore essential to anticipate these consequences in order to optimise pension and retirement planning.
For any questions on this topic, please do not hesitate to contact us. Our specialists are available to advise and support you.
