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Column by Peter Hofmann
Tax Reform on Lump-Sum Pension Withdrawals: What It Means for Employers?
As someone who deals daily with the challenges and opportunities of occupational pension schemes, I see the planned tax reform on lump-sum withdrawals from pension funds as a significant change—particularly for employers. At first glance, the topic may seem dry, but on closer inspection, it becomes clear that it affects the entire personnel management strategy and can have far-reaching consequences.
In the picture: Peter Hofmann, President of the Board of Trustees of Tellco pk
With the upcoming adjustments, topics such as retirement planning and occupational pensions will become even more central to HR strategy. Employees will require more guidance, raising questions such as: Should I opt for a lump sum, an annuity, or a combination of both? Will buying into the pension fund still be worthwhile in the future? Should I bring forward my retirement to benefit from the current tax rates? These considerations call on employers to act proactively and offer well-informed solutions.
New Rules, New Plans
Employees approaching retirement in the coming years may reconsider their plans. Some might decide to retire before the reform comes into effect (i.e. before 2027) to take advantage of the current tax rates. Such considerations could have staffing implications for businesses: early retirements of experienced employees or a concentration of retirements in certain age groups are possible scenarios. HR professionals should be prepared for this and consider appropriate measures in their succession planning.
Additionally, perceptions of pension benefits may shift. If lump-sum withdrawals are taxed more heavily in the future, previously generous offers—such as the option to make high savings contributions—may seem less attractive. However, it remains crucial to clearly communicate the continuing benefits, such as the tax deductibility of contributions and the financial security provided in retirement.
Greater Flexibility in Pension Regulations
Flexible retirement models could become more important. If employees increasingly opt for annuities in the future, pension regulations should allow for sufficient flexibility regarding partial annuities, pension payments, and appropriate conversion rates. For those who still wish to withdraw part of their pension as a lump sum, the option of partial withdrawals (rather than an “all or nothing” approach) would be ideal for mitigating tax progression through splitting.
Finally, employers should consider the competitiveness of their location. In Switzerland, tax rates on lump-sum pension withdrawals vary by canton. Employees living in a high-tax canton might consider relocating to a canton with lower taxes shortly before retirement.
Given the potential impacts and the uncertainty regarding whether and when the reform will take effect, employers should take a proactive approach. By addressing the potential consequences early and providing their employees with clear guidance, they not only strengthen trust within the workforce but also position their company as a forward-thinking and responsible employer.
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