This is not tax advice!

Tax questions can be difficult, so seek professional advice! This is purely to give you an overview and by no means is this article tax or legal advice in any form!

The most important factor: Where do you live?

In the majority of cases, the number one question is: Where will you live during your retirement? This could be one country, but it could also be two or more countries, e.g. if you have houses and family in two different countries and have strong ties to both these countries during your retirement.

Who taxes pensions from Switzerland - in most cases

In many cases, the pensions from all three pillars are taxed in Switzerland. This is for example the case if you live in Switzerland during your retirement age and do not have a second residency in another country.

But sometimes taxes need to be paid to another country instead. This is typically the case if you don't live in Switzerland during your retirement and the double taxation treaty assigns the right of taxation to the country or countries you live in instead.

In a worst case scenario, e.g. with a residency in some exotic countries, it can happen that both Switzerland and the other country/countries want you to pay taxes on your pension. And then there are some exceptionally greedy countries that might try to requalify your pension as capital gains. This could lead to a higher-than-expected tax rate in some special cases.

The exact rules can be different for each country and your personal situation, so an evaluation from a professional advisor is generally advisable. Be careful with advice in Internet forums, which is often incorrect or otherwise misleading.

The different types of pensions in Switzerland

Pensions in Switzerland come in many forms, each with their own taxation rules and regulations. AHV (Old Age and Survivors Insurance) is a pension provided to those who are retired and not working that is funded by employers and employees from payroll deductions. AHV provides financial support for retirement, disability, death, child allowances, maternity leave, old age, and survivor benefits.

BVG (Occupational Pension) pays out an income for life to retirees when they reach retirement age. It requires mandated employer contributions as well as employee's optional contributions that are collected either through voluntary lump-sum payments or payroll deductions. BVG aka the second pillar mainly exists because the first pillar would not provide you with enough money during your retirement unless you had substantial savings, which the average person doesn't.

The big problem is that the first pillar (AHV) and second pillar (BVG / Pensionskasse) offer lousy returns. I would argue they are even burning parts of your money, just for the sake of being super safe. The returns are below the inflation rate, so if there were the possibility to invest everything yourself and if you are clever enough, you would get a much better return.

This brings us to the third pillar aka Pillar 3a: Säule 3a pensions are private savings plans that offer tax advantages on voluntary payments made into the plan up to a set limit per year. The third pillar allows you invest in stocks and other asset classes, leading to a much better returns if you are playing things right. If everything goes well, this will (over)compensate the inflation of the money itself.

The third pillar also offers more options to take the money out prematurely, e.g. when leaving Switzerland to move to a sunnier place before retirement.



The tax rate you have to pay on your Swiss pension in most cases

Again, I am simplifying a lot here.

When you retire in Switzerland, your pension will usually be taxed like income. This means that you will have to pay income tax on the money you get from your pension.

If you retire in another country, in most cases that other country will want you to pay taxes on your pension. It is important to talk with a professional advisor so that you know how much tax you need to pay.

Keep in mind that those rules change because governments are always looking for new ways to extract more money from you. So the rules that are valid now might look quite different in 30 years from now.

Taking money out of your pension before retirement is taxed differently

If you take money out of your Swiss pension before retirement, it is generally taxed as an early withdrawal. Depending on the terms of the particular pension plan, there may be a penalty imposed for this early withdrawal and any taxes due will vary depending on your individual circumstances. It is important to speak with a professional financial advisor who can help you understand the tax implications of taking money out of your pension before retirement. Also check out my book How To Move To Switzerland to learn more about the taxes that apply when making a withdrawal from your pension to buy a house or move to a different country.

The impact of double taxation treaties on pension taxes

Double taxation treaties play a critical role in determining the location of taxation for pensions from Switzerland. If another country is assigned the authority to tax Swiss pensions, then those taxpayers can potentially take advantage of beneficial rates that may be more favorable compared to Switzerland's rates. Additionally, if there are multiple income sources from various countries, the treaty could enable pensioners to agree to total their incomes across countries and use a lower overall rate instead of paying separate taxes for each individual income source. Ultimately, double taxation treaties can make a big difference when it comes to taxation on pensions from Switzerland. This impact can be both positive or negative and often requires professional help from a tax advisor specialized in this field.

Tax planning for your retirement with a pension from Switzerland

It is important to find out how payments will be taxed before investing any money and also before relying on them at the age of retirement. When done properly, tax planning for a pension from Switzerland can give you peace of mind knowing that your future financial needs will be met. It can also help pay fewer taxes by spending your retirement in a beneficial country.

To sum it up, understanding how to properly plan for a pension in Switzerland is essential to ensuring that your retirement is secure and stress-free. With AHV, BVG, and Pillar 3a pension plans all presenting unique tax considerations, knowing what works best for you when it comes to planning your retirement can seem daunting. However, taking advantage of the Swiss tax system and double taxation treaties available offers the opportunity to reduce your taxable income, potentially making a pension accessible to more people. Planning ahead with preventive measures can make all the difference if you want to successfully retire in Switzerland. To get all of this information plus more about pensions, taxes, and more on moving to Switzerland in one complete guide, take a look at my book How To Move To Switzerland.