Let us assume that Mr Smith plans to retire properly at the age of 65. Let us also assume that he will then draw the pension fund – at least in part – in the form of a capital sum. In this case, he could withdraw 3a accounts before retirement and postpone the withdrawal of any vested benefits accounts. Why do we explain in this article.

The draft model of how to withdraw retirement assets in stages.

Explanation of the draft model for staggered payout

Capital withdrawal tax is progressive

Taxes are incurred when drawing 2nd and 3rd pillar pensions. Not only the tax amount, but also the tax in percent increases with the amount of capital withdrawn. This is called tax progression. Since 2nd and 3rd pillar lump-sum payments are added together in the same year (also for spouses), you pay more tax if you receive everything in the same year than if you pay it over several years.

Chart by Visualizer

Staggered purchase must be planned

However, a staggered payout must be planned, since it is not possible to subsequently split 3a and vested benefits accounts. In the case of vested benefits accounts, a split between two different vested benefits institutions is possible, but only at the time of leaving the pension fund. 3a accounts can never be split (Exception WEF advance withdrawal). Therefore, you must make sure that you set up several 3a accounts before you draw them.

The withdrawal of 3a accounts can only be postponed if proof of employment is provided

You can postpone the withdrawal of vested benefits accounts by up to five years beyond retirement age. In contrast to a 3a account, you do not have to provide proof that you are still gainfully employed. It is therefore advisable to withdraw any vested benefits accounts after regular retirement and 3a accounts before retirement.

To stagger WEF advance withdrawal and partial retirement as further options

Other options for staggering the lump-sum withdrawal from the pension plan are the early withdrawal for home ownership (WEF early withdrawal) and partial retirement. In both cases, however, you will not be able to make any further voluntary purchases. If you have already purchased into the full regulatory benefits, a WEF early withdrawal or partial retirement is an option to supplement the staggered vested benefits and 3a accounts.

Not to be mistaken for the regulatory options

This draft model should not be mistaken for the regulatory reference options. Vested benefits accounts can also be withdrawn up to five years before the normal retirement age. However, this may mean that you will not be able to exploit the full potential of the staggered withdrawal, as you may have to withdraw 3a accounts at the same time, which you cannot defer beyond retirement age if you are not gainfully employed.

There are tax savings of up to 70 %

All in all, we count twelve years in the draft model to the staggered reference. This requires, however, that you have five vested benefits accounts, which should be extremely rare, as vested benefits usually have to be brought back when you join a new pension fund. We are therefore reckoning with only eight years for the staggered withdrawal of capital. And although the amount of these capital withdrawals will vary considerably in practice, we are expecting an average value here. We are therefore comparing the withdrawal of one million Swiss francs at once or in eight equal tranches:

 Taxes withouth staggered payout
payout in CHF
Taxes with
staggered payout in 8 tranches in CHF
Tax Savings
in CHF
Tax Savings
in %
AG, Aarau88'57956'03232'54736.7%
AI, Appenzell55'20038'74416'45629.8%
AR, Herisau111'79881'99229'80626.7%
BE, Bern98'12452'12046'00446.9%
BL, Liestal95'60040'99254'60857.1%
BS, Basel99'75061'99237'75837.9%
FR, Fribourg123'97063'20060'77049.0%
GE, Genève85'05351'68033'37339.2%
GL, Glarus70'00054'99215'00821.4%
GR, Chur98'20045'59252'60853.6%
JU, Delémont101'25268'75232'50032.1%
LU, Luzern87'41858'64828'77032.9%
NE, Neuchâtel89'31266'64022'67225.4%
NW, Stans79'21061'67217'53822.1%
OW, Sarnen74'19259'18415'00820.2%
SG, St. Gallen79'32064'32015'00018.9%
SH, Schaffhausen63'19442'89620'29832.1%
SO, Solothurn79'17556'25622'91928.9%
SZ, Schwyz118'00033'83284'16871.3%
TG, Frauenfeld85'64070'63215'00817.5%
TI, Bellinzona144'10646'59297'51467.7%
UR, Altdorf60'05045'04015'01025.0%
VD, Lausanne136'17982'57653'60339.4%
VS, Sion103'00049'99253'00851.5%
ZG, Zug64'14739'49624'65138.4%
ZH, Zürich160'88251'792109'09067.8%

Assumption: Not married, no childreen, no religion
Source: postfinance.ch

What the calculation does not take into account

If you withdraw pension assets early, they will also revert to your private assets early. Consequently, you must declare the assets in your tax return and pay wealth tax. If you invest the pension assets you have withdrawn as part of your private assets with high returns (dividends, interest, etc.), you will pay income tax on these returns. Moreover, the size of wealth and income taxes depends on how much of your assets and income you already have and where you live. Depending on this, it can more or less reduce or, in extreme cases, even cancel out the effect of the tax savings achieved through the staggered approach.

Outlook from a tax law perspective

Finally, we would like to point out that the tax authorities have become increasingly critical of staggered withdrawals. Although the legal situation still allows for staggered withdrawals, but there are limits. One has already been mentioned. For example, after a WEF early withdrawal or partial retirement, no more purchases can be made into the pension fund. Furthermore, it is possible that the legal situation will change in the future and further restrict a staggered withdrawal or eliminate its tax advantage. Possible scenario: Capital withdrawals are immediately assessed and invoiced by the tax authorities. If another capital withdrawal is made in the same year, the first assessment is already revised today. It is possible that this system will also be used in the future for staggered withdrawals over several years.