Tax on pension capital withdrawals in Switzerland

How is pension capital taxed?

Pension capital (2nd pillar or pillar 3a) is not added to your other income. It is taxed separately, once at withdrawal, at a privileged rate that is well below the ordinary income tax scale.

The tax has a federal, a cantonal and a communal part. The result therefore depends on your municipality of residence at the time of withdrawal, and on the total amount withdrawn in the year.

Large differences between cantons

The taxation of capital varies enormously from one canton to another: for the same amount, the bill can be twice as high, or more. Some cantons are very favourable, others much heavier.

Your tax residence at the time of withdrawal is therefore decisive. RetirePlan factors this in directly, to give a realistic figure rather than an average.

The effect of progressivity

The tax rate on capital rises with the amount: the larger the capital withdrawn, the higher the rate. Crucially, all capital withdrawals made in the same year are added together, including those of your spouse.

As a result, withdrawing the 2nd pillar and 3a in the same year, or combining several accounts, can push up the rate. Conversely, spreading withdrawals out reduces the bill.

Staggering withdrawals to reduce the tax

The most effective strategy is to spread capital withdrawals over several tax years: withdraw one 3a one year, another the next, then the 2nd pillar, breaking the progressivity.

Holding several 3a accounts makes this staggering easier. Beware, though, of the three-year rule after an LPP buy-in, which temporarily blocks the corresponding lump-sum withdrawal.

Lump sum or pension: the tax angle

Taxation pits two logics against each other. The pension is added to your income every year and taxed at the ordinary rate. The lump sum is taxed once, at a reduced rate, then generates no further income tax (only future returns and wealth are taxed).

Depending on your canton, your amount and your other income, either option can be more advantageous. It is a case-by-case calculation.

Quantifying the tax with RetirePlan

RetirePlan applies your canton's real taxation and quantifies the tax on your capital withdrawals, as well as the saving achievable by staggering them. You see the net amount you will keep, not just the gross.

You can compare several withdrawal scenarios and choose the one that maximises your net retirement income.

Frequently asked questions

How is 2nd- or 3rd-pillar capital taxed?

It is taxed once at withdrawal, separately from your other income and at a reduced rate. The tax has a federal, cantonal and communal part, and depends on the amount withdrawn and your place of residence.

Does the tax on capital vary by canton?

Yes, significantly. For the same capital, the tax can vary twofold depending on the canton and municipality. Your tax residence at the time of withdrawal is therefore decisive.

How do you reduce the tax on pension capital?

By staggering withdrawals over several tax years, because the rate is progressive and all withdrawals in the same year are added together (including a spouse's). Holding several 3a accounts makes this easier.

Is a pension or a lump sum better for tax?

The pension is taxed each year as income; the lump sum once at a reduced rate. Depending on your canton, the amount and your other income, either option can be more advantageous: a personalised calculation is needed.