Private pension plans
Buying back missing years of contributions to occupational pension plans (2nd pillar) has until now been known as one of the main ways of reducing your annual tax burden, since it allows taxpayers with gaps to make significant voluntary investments to their pension. The 3rd pillar also allows to reduce one’s taxable income by investing in your pension savings. In 2023, taxpayers insured under an occupational pension scheme (2nd pillar) can make voluntary contributions of up to CHF 7’056, while people not insured under a 2nd pillar scheme (notably self-employed people or people earning too little to meet the minimum 2nd pillar threshold) can make contributions equal to up to 20% of their income, but CHF 35’280 at most. Up to now, these contributions had to be made during a given tax year to be considered as deductible. If no contribution was made by December 31, the contribution cap could not be carried forward to the next year and was therefore lost.
Motion accepted by Parliament
A motion submitted in 2019 was accepted by Parliament in 2020. In principle, the legal changes should come into force in 2023. Accordingly, it will be possible to offset periods during which the insured were unable to make the maximum authorised contribution into their 3rd pillar A. This way, people who have not contributed to their 3rd pillar or contributed less than the cap amount will be able to make up for the gap in their private pension plan and also reduce their tax burden.
Possible contributions and tax savings
- Ordinary 3rd pillar A contributions will remain limited (currently to CHF 7’056 / CHF 35’280, as outlined above).
- The amount the insured will be able to buy back will be calculated from the age of 25, even if the taxpayer did not have any income subject to AVS (1st pillar) contributions at that point. The insured will, however, have to have an income subject to AVS contributions at the time of making the buyback.
- A single buyback will be allowed per a 5-year period. Each buyback will be capped to the maximum contribution set for the year (e.g., CHF 35’280 in 2023).
- In the same way as for the 2nd pillar, any early withdrawals of the capital made for the purchase of a principal residence will have to be deducted from the maximum buyback amount.
This buyback option will allow for a more significant tax savings, both for income tax (since buybacks are deductible from one’s income) and wealth tax (since assets held in a 3rd pillar A account are not subject to wealth tax). Of course, it is important to plan ahead, since the funds in the 3rd pillar A account will remain blocked until retirement age. Nonetheless, the situations in which early withdrawal is possible remain the same as those currently in force. Additionally, it should be noted that, as with 2nd pillar buybacks, the capital should not be withdrawn 3 years or less following a buyback; otherwise, the tax advantage obtained in those years will be lost.