Pension plan legislation prohibits capital withdrawals of BVG/LPP purchases in the three years after a purchase was made. The Federal Supreme Tribunal has now confirmed this rule – erroneously, claims ASIP.

On 12 March 2010, the Federal Tribunal handed down a ruling on Article 79b(3) BVG/LPP in which it confirms that withdrawals from a pension scheme cannot be made in the form of lump-sum capital in the three years after a purchase was made  (see 2C- 658/2009). Amended effective 1 January 2006, Article 79b(3) provides that: “Benefits deriving from a purchase may not be withdrawn in the form of capital during a period of three years”.

The Federal Tribunal hands down a “fiscally motivated” decision

Although the wording of the article is quite clear, the article has been the subject of considerable controversy since it was introduced. Some cantonal tax authorities take the position that lump-sum withdrawals are prohibited altogether because the retirement savings capital accrued at the time of the purchase is also covered by the 3-year standstill period. They suspect tax evasion. Although this position is strongly criticised in pension plan circles, it is clearly upheld by the aforesaid Federal Tribunal decision.

Incorrectly so, according to ASIP, the Swiss association of pension institutions. Should the Tribunal stand by its decision, the implications for pension institutions and their members will be far-reaching. The provisions governing purchases are held to have been one-sidedly construed on tax-motivated grounds. The interpretation is also inconsistent with the legislative intention of establishing a uniform legal basis. Under the circumstances, pension plan members will hardly be prepared to make additional purchases. Moreover, the tax authorities have also erroneously qualified withdrawals in connection with the encouragement of home ownership and cash disbursements as withdrawals of benefits in the form of capital,  

According to ASIP, the decision of the Federal Tribunal disregards legal statutes, the letter of the law, the opinion of the Federal Social Insurance Office (BSV/OFAS) and prevailing practice. The decision therefore undermines legal certainty.

ASIP recommends not to change pension plan practice

Since the Federal Tribunal may change its jurisprudence at any time, the ASIP believes a literal interpretation of Article 79b(3) BVG/LPP is justifiable. The existing ruling is so problematic and one-sidedly tax-motivated that the ASIP sees no reason to deviate from current practice until the Federal Tribunal hands down another decision.

Accordingly, the ASIP recommends that pension institutions expressly advise their members to contact the competent tax office before making a purchase in order to check whether the purchase is tax deductible. The closer a member is to retirement age, the more important it is to check. If a person is a member of several pension schemes, each purchase must be considered separately. Withdrawals in the form of lump-sum capital three years after a purchase are no problem.