In this article
Key points
- Employer and employee BVG/LPP contributions are fully deductible: they are tax-free.
- Voluntary purchases are fully deductible from taxable income and increase retirement benefits.
- Second-pillar and pillar 3a pension assets are exempt from wealth tax.
- On retirement, a pension is taxed as income; a lump sum is taxed once, at a reduced rate.
Occupational pension provision (BVG/LPP) forms the second pillar of the Swiss pension system, alongside the OASI/DI and private provision. Linked to employment, it offers significant tax advantages to both employers and employees.
In this article, we look at the tax treatment of second-pillar contributions, purchases, reserves and benefits.
The legal basis
Employers whose staff are subject to the BVG/LPP are required by law to join a pension institution entered in the occupational pension register and to insure their employees with it.
An employer can join several pension institutions, depending on its staff structure and how it wants to shape its occupational pension provision.
How pension institutions are taxed
Pension institutions under private or public law with legal personality are exempt from:
- direct federal tax;
- cantonal and municipal taxes;
- cantonal and municipal inheritance and gift taxes.
The exemption applies insofar as their income and assets are used exclusively for occupational pension provision (Art. 80 BVG/LPP).
Ordinary contributions
The employer pays 100% of the contributions to the pension institution, both its own share and that of the employees, and then deducts each employee’s share from their salary.
Under Art. 80 et seq. BVG/LPP, these contributions are deductible: the employer books its share as a staff cost, while the employee’s share, deducted from salary, does not form part of their taxable income. All contributions paid to a pension institution are therefore tax-free.
Voluntary purchases
Purchases are additional payments that employees make into their pension account to close gaps or improve their future BVG/LPP pension or capital. Their main advantages:
- Full deductibility: the amount paid in is fully deductible from taxable income.
- Tax optimisation: the tax burden falls in the year of the purchase.
- Higher retirement benefits: the accumulated capital grows, and with it the future pension.
Employer contribution reserves
To gain flexibility, strengthen its financial stability or plan ahead, an employer can build up an employer contribution reserve. This provision covers future second-pillar costs in advance.
The company can then suspend its contributions in financially difficult years, or keep resources available for planned investments: second-pillar benefits are financed from the reserve, which eases the accounts in those years. This reserve is also tax-free, a decisive advantage for planning.
Extra-mandatory and supplementary plans
The law sets minimum parameters, but pension institutions can offer more, in two forms:
- extra-mandatory plans, with insurance guarantees and contributions above the legal minimums;
- supplementary plans, which are added to the basic plan and provide additional benefits.
This extended cover better protects employees’ pension provision; it is up to the employer to decide whether to introduce it.
The tax advantages for employees
- higher contributions to their own pension provision, deducted from income;
- more scope for voluntary purchases, and therefore for tax deductions.
Exemption from wealth tax
An often overlooked detail: like contributions, assets held with pension institutions are exempt from wealth tax.
Pension or lump sum: how benefits are taxed
When drawing retirement assets, the BVG/LPP provides for two forms of payment: a pension or a lump sum. Their tax treatment differs significantly.
Pension or lump sum: the tax differences
Table 1| Criterion | Pension | Lump sum |
|---|---|---|
| Income tax | Taxed as income, after any deductions | Taxed once, separately from other income, at a reduced rate |
| Wealth tax | None: the assets remain with the pension institution | Payable in subsequent years, once the capital has been drawn |
| Assets | Remain with the pension institution | Become part of personal assets |
Conclusion
The second pillar offers concrete tools, built on extremely favourable tax levers.
Maurizio Reichlin, Assidu
Every step in this area requires solid expertise and the support of a specialist.
Pension planning calls for legal, tax and insurance expertise. Assidu provides:
- a team of experts and analysis tools, for personalised solutions that comply with current rules;
- step-by-step support, from the choice of pension institution to extra-mandatory or supplementary plans, voluntary purchases and follow-up on sensitive tax questions.
Insurance and Pension Consultant · Individual Pension Coordinator · Insurance Specialist with Federal Diploma of Higher Education
