The Federal Council has decided that the Federal Law on the Taxation of Life Annuities and Similar Forms of Pension Provisions will come into force on January 1, 2025. In the process, the taxation of pillar 3b life annuities in will be adjusted.
In the case of life annuities, a 40% share has generally been taxed as a lump-sum share of income up to now. Life annuities are periodically recurring benefits that are set for the life of one or more beneficiaries. The pension entitlement can exist until death or during a certain period (temporary life annuity), but always provided that the beneficiary is alive.
In the case of life annuities, the legislator has so far assumed that part of the annuity represents a repayment of the funds contributed by the insured person, without these being fully deductible from income at an earlier date. This circumstance has been considered with the reduced taxation of life annuities at 40%. As a result of this flat-rate solution, all pension benefits are subject to income tax at 40% for the insured, regardless of how long a pension is drawn or whether and when the contribution is used up.
Excess benefits will be 70% taxable
In the future, the taxable income portion of the guaranteed annuity benefit for life annuity insurance policies under the Insurance Contract Act will be calculated depending on the maximum interest rate of the Swiss Financial Market Supervisory Authority FINMA. Any surplus benefits will be taxable at 70%. In the case of life annuities and pledges under the Swiss Code of Obligations as well as foreign life annuity insurance policies, the taxable income portion will now be determined based on the average yield of ten-year federal bonds.
Benefits from life annuity insurance are reported annually
Benefits from life annuity insurance policies are now reported annually to the cantonal tax authorities via the Federal Tax Administration (FTA). These reports increase the cantons' control options. IT adaptations are necessary in the tax authorities so that the reporting procedure can be carried out in purely electronic form. Inheritance tax adjustments may also be necessary for cantons that levy inheritance tax on premium refunds in the event of death from life annuity insurance policies.
Federal law to come into force at the beginning of 2025
The Federal Councils adopted the reform on June 17, 2022. The referendum deadline expired unused on October 6, 2022. The Federal Law on the Taxation of Life Annuities and Similar Forms of Pension Provision will come into force on January 1, 2025.
The bill provides that the Federal Council shall determine the effective date.