Federal Council proposal to increase taxation on lump-sum withdrawals from the 2nd and 3rd pillars

Principle

In general, contributions made to pension institutions are deductible from taxable income. In return, the pension payments received later are fully subject to income tax. During the savings phase, capital gains are not taxed, allowing for their full reinvestment. This creates a favorable tax regime, which is a political choice designed to encourage increased savings for retirement.

Context

Withdrawals from the 2nd and 3rd pillars are currently taxed at one-fifth of the normal federal direct tax rate. This reduced rate takes into account the fact that capital withdrawals are made over a limited period, while pension payments span a lifetime, benefiting from a lower tax progression.

Proposal

The Federal Council is considering aligning the taxation of capital withdrawals from the 2nd and 3rd pillars. This would lead to an increase in the tax burden on capital withdrawals. The aim is to eliminate the favorable tax treatment of capital withdrawals compared to pensions at the federal level. Additionally, the proposal seeks to discourage high-income households from exploiting the 2nd and 3rd pillars for tax optimization purposes.

Consequences

The removal of this federal tax relief could lead to a decrease in capital withdrawals. On the other hand, it would make it less attractive for taxpayers to use retirement savings tools. However, pension payments subject to tax would be higher in the future, partially deferring the receipt of additional tax revenue. It is also possible that the elimination of this tax advantage would reduce contributions to the 2nd or 3rd pillars, resulting in higher income tax revenues as a consequence.

Upcoming developments

Update March 2026

Following the rejection of the bill by the Council of States in December 2025, and subsequently by the National Council in March 2026, the proposed increase in taxation on lump-sum withdrawals from the 2nd and 3rd pillars, put forward by the Federal Council as part of its budget relief program, will not be implemented under this bill.

While the increase in taxation on lump-sum withdrawals will not be implemented under the current bill, the topic of pension taxation remains subject to ongoing political debate. Future reforms may further impact the balance between flexibility, tax incentives and long-term sustainability of the pension system.

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