Investments in the context of pension provision - national and international

Block 1: Introduction and relevant legislative developments

The contents were conveyed during the seminar in the form of a short presentation.

Block 2: Purchasing and prompt capital payment

Case 2.1: Purchase into the second pillar and capital payment from pillar 3a, question of "consolidation

Facts

Mrs Meier is affiliated to a second pillar. She also pays contributions to the pillar 3a.

On May 1, 2014, Mrs. Meier made a purchase of CHF 140,000 into the pension fund, and on April 1, 2015, she will make a WEF advance withdrawal from pillar 3a of CHF 200,000.

Question

Can the deduction of the purchase in the second pillar be refused if a capital payment from pillar 3a is made in the near future?

Block 3: Taxation of services

Case 3.1: Severance pay

Facts

Mr Seiler was employed by Wasga AG from 1987 to 2017. The employment relationship was terminated by mutual agreement with a termination agreement dated 15 June 2017 with a view to early retirement. Mr Seiler is 61 years of age at this time. The contract also provided that Wasga AG would pay Mr Seiler a gross capital contribution of CHF 1.5 million based on an agreement concluded between him and his employer on 30 June 1997.

The purpose of the 1997 agreement was to give Mr Seiler a share in future profits in order to keep him with the company as long as possible. The profit sharing also had the function of "improving the benefits of the Wasga AG pension scheme against old age, disability and death". Under which conditions and to what extent Mr Seiler was to be paid a profit participation was essentially described as follows:

Retirement on reaching the target age: If Mr Seiler leaves Wasga AG between the ages of 60 and 65 (or later), he is entitled to an increase in benefits within this period.

Withdrawal before reaching the target age due to death or disability: If the withdrawal before reaching the age of 60 is due to reasons beyond Mr. Seiler's control (e.g. due to death or disability), a reduced lump sum will be paid to Mr. Seiler or his descendants. The payment of corresponding periodic benefits is possible.

Question

The tax administration assesses this capital payment as principal income. Is that correct?

Case 3.2: Severance pay with purchase into the pension fund

Facts

Mr Dreier will be 61 years old in August. He intends to give up his employment at that time. According to the pension fund regulations, the retirement age will be 65.

Mr. Dreier earns CHF 125,000 gross and his insured salary is CHF 100,000. According to the regulations, the annual savings contributions to the pension fund between the ages of 60 and 65 amount to 20% of the insured salary. Up to now, he has been able to save up retirement assets of CHF 950,000 and the difference to the maximum benefits under the regulations is 150,000 (pension gap).

Because the employer wants to realign his business, he is supporting Mr. Dreiers' early retirement. Since Mr. Dreier will no longer be able to make contributions to the second pillar in the future, he is prepared, following negotiations, to pay a severance payment of CHF 75,000 and will pay this directly into the pension fund in June. The retirement benefit is due in August. Mr Dreier will receive CHF 250,000 in the form of a lump sum, the remaining retirement assets as a pension.

Variant

The employer pays a severance payment of CHF 150,000 directly into the pension fund in favour of Mr. Dreier.

Question

What are the consequences of receiving retirement benefits in the form of capital?

Block 4: Flexible retirement

Case 4.1: Pensum reduction and postponement (1)

Facts

Ms U is an employee of company Z in the sales department. Her compensation is, among other things, performance-related and fluctuates from year to year (2017: CHF 240,000; 2016: CHF 300,000; 2015: CHF 150,000).

At the age of 62 she reduces her workload by 30%. Ms U plans to remain partially employed until the age of 70. At best, she is considering a gradual retirement. Mrs. U wants to draw retirement benefits in the form of a lump sum.

Question

How is the situation to be assessed from a tax point of view?

Case 4.2: Pensum reduction and postponement (11)

Facts

Mr. M. is employed as an employee by service company X, where he earns an annual salary of CHF 120,000. Within the framework of pillar 2a, he is insured with the pension fund "VOE 2a". For the salary components subject to AHV above the upper limit up to CHF 120,000, there is a pension solution within the framework of pillar 2b with the "VOE 2b" pension scheme.

On reaching the age of 62, M. reduces his workload and his salary falls to the upper limit of CHF 84,600. As a result, the insured salary in "VOE 2b" falls to zero.

As Mr. M feels strongly connected to his profession, he wants to remain employed until he reaches the age of 68.

Questions

1. What happens to the retirement assets that become "free" with the reduction in workload ("excess")?
2. What are the consequences of the legislation "Old Age Provision 2020" for such an excess?
3. What planning options are available to the insured in the event of reductions in the workload?

Case 4.3: Leaving the pension fund and continuing to work

Facts

Ms U resigns at the age of 63 from her employer Z, as she has had enough of the constant restructuring and the increasing pressure to perform. Since Ms U likes to work, she takes on a new job at a retail store with a reduced workload. The new annual salary is CHF 48,000.

The earliest possible regulatory retirement age for the pension scheme of Employer Z is 58 years.

Question

How are the facts of the case to be assessed, what planning options are open to Ms U?

Case 4.4: Partial retirement

Facts

The self-employed lawyer Z will retire in the amount of 35% as of 1 July 2011. A second partial retirement of a further 35% will take place on 1 September 2013. The final cessation of acquisition will take place at the end of July 2016.

The insured person receives all three partial retirement benefits in the form of a lump sum. In the course of its investigations, the tax authorities establish that the second partial retirement step has not been completed. As a result, it takes the view that the second lump-sum benefit must be taxed in an ordinary manner, as no reversal has taken place.

Questions

How is the legal situation to be assessed?

Case 4.5: Continued insurance pursuant to Art. 47 BVG

Facts

Ms. T leaves the compulsory pension scheme at the age of 58 and exercises her right to continue to be insured voluntarily with the previous pension scheme (a corresponding regulatory basis is given). In order to build up her retirement provision appropriately, she makes savings and risk contributions until the age of 62 (corresponding to the earliest possible regulatory retirement age). Ms. T. had already given up her gainful employment when she left the compulsory insurance. From the age of 62 she will receive a retirement pension.

Question

How is the situation to be assessed from a tax point of view?

Case 4.6: Continued insurance pursuant to Art. 47a BVG (ELG revision)

Facts

Ms T is dismissed at age 58 due to poor performance and persistent breaches of duty by the employer. She withdraws from the compulsory pension scheme and exercises her right to continue to be insured voluntarily with the previous pension scheme. In order to build up her retirement provision appropriately, she makes savings and risk contributions until she reaches the age of 64 (corresponding to the normal regulatory retirement age). Ms. T had already given up her gainful employment when she left the compulsory insurance, as she can live on the income from her assets. From the age of 64, she draws a retirement pension.

Question

How is the situation to be assessed from a tax point of view?

Block 5: Aspects of occupational pension principles

Case 5.1: Adequacy - 1e plans

Facts

Ms. R is 60 years old and a successful communications consultant at "Communication GmbH", which is owned by her. Ms. R has insured her net income from gainful employment subject to AHV contributions amounting to CHF 250,000 with the "VOE Komfort" pension fund (insured salary = AHV salary; contributions according to the BVK "TOP" plan regulations). In recent years, Ms R has bought into the maximum possible retirement assets.

Mrs. R is made aware of so-called "1e plans" in the media and is considering dissolving the existing affiliation contract and concluding a new one with the pension fund "VOE Turbo", which offers such plans.

Question

Ms R asks you to consult on the essential aspects of these so-called "1e solutions". What are the essential aspects?

Case 5.2: Adequacy - insured earnings

Facts

Mr Z is self-employed and his annual income fluctuates considerably. In addition to the regular regular income components, he also repeatedly generates extraordinary income.

Question

What is to be considered specifically from a tax point of view?

Case 5.3: Collectivity

Facts

Mr. M is a self-employed dentist. His wife is employed by her husband as a trained dentist. The spouse's salary is recorded by the AHV as income from gainful employment.

In addition to the wife, the dentist employs two medical practice assistants.

Mr. M intends to join a collective foundation for a "management plan" in which he and his wife are insured.

Question

How is the situation to be assessed from a tax point of view?

Block 6: Unlawful and improper capital payments

Case 6.1: Recording SE (1)

Facts

Mrs. Marxer is employed as a trustee in the employment relationship with a tax consulting company. As of 31.12.2014 she will reduce her workload in gainful employment. At the same time, she will take up self-employment (SE) as a tax consultant to the extent of 20%. The self-employment will subsequently be expanded up to a workload of 40%.

Questions

1. Mrs Marxer asks when she can draw her vested benefit credit in cash on the basis of the FZG in order to pay off current business expenses with these funds?
2. Which institution has to assess whether self-employment exists?
3. During what period is a cash payment possible as a result of taking up self-employment?
4. Under what other title can self-employed persons claim a cash payment?

Case 6.2: Recording SE (11)

Facts

Mrs. Marxer makes a declaration to the pension fund that she has taken up self-employment and will no longer be subject to compulsory insurance as of 1 September 2015. At the same time she will cease to be gainfully employed as of 30 August 2015. As a result, the pension fund will pay the insured persons the vested termination benefit of CHF 500,000, which was subject to income tax as a lump-sum benefit from pension provision.

Contrary to her declaration, Mrs. Marxer did not take up self-employment as her main occupation and founded a GmbH in September 2015. From 1 October 2015 she will only accept orders via the GmbH.

Question

How is the situation to be assessed from a tax point of view?

Case 6.3: Admission SE and transformation (1)

Facts

Mrs. Meier took up self-employment to the extent of 100% on 1 January 2017. On May 30, 2017 she converted her sole proprietorship into "Meier Consulting GmbH" with retroactive effect from January 1, 2017.

Question

How is the situation to be assessed from a tax point of view?

Case 6.4: Admission SE and transformation (11)

Facts:

Mrs. Meier started her self-employment on January 1, 2017 and is able to position herself financially successful in the market. The high fee income in 2017 prompts her to convert the sole proprietorship into "Meier Consulting GmbH" on June 15, 2017 with retroactive effect from January 1, 2017.

Question:

How is the situation to be assessed from a tax point of view?

Case 6.5: SE admission and liquidation

Facts

Mrs. Müller has started self-employment in the field of "life counselling" on 1 January 2017. As the realised fee volume did not reach the planned level, she will give up her self-employed activity as of 1 January 2018 and take up employment in her traditional profession.

Question

How is the situation to be assessed from a tax point of view?

Case 6.6: Admission SE and investment obligation

Facts

Mrs. Meier, resident in the canton of SO, will take up self-employment on January 1, 2015 and will receive her termination benefit in cash based on Art. 5 FZG. Mrs. Meier is engaged in a service activity, which limits her investment volume to IT infrastructure and office equipment. Since she is successful in the market, she does not need the capital benefit drawn under Pillar 2 for either business activities or private expenditure, so she keeps the funds under Pillar 3b as liquidity at the bank.

The assessment authority taxes the lump-sum benefit from pension provision together with the other income. It justifies this by the fact that the pension capital was used to cover private living costs, accumulation of private assets and repayment of private debts. No proof of the investment of the capital payment in the business had been provided.

Question

How should the facts of the case be assessed from an income tax perspective?

Case 6.7: WEF advance withdrawal with replenishment mortgage

Facts

The couple X, resident in Olten, moved in on 31 March 2011 (CHF 30,929) and on

On April 4, 2011 (CHF 57,225) they received two capital benefits totalling CHF 88,154 from the tied pension plan, which they immediately used to pay off a mortgage loan (CHF 82,929) and to settle maintenance costs (CHF 4,821). The capital benefits were definitively invested as capital benefits from pension plans.

As of 30 December 2011, the mortgage on the property was increased by the amount of CHF 40,000.

Question

How is the situation to be assessed from an income tax perspective?

Case 6.8: WEF advance withdrawal pillar 3a

Facts

Mrs. Rüdiger received a capital payment of CHF 25,000 from "Bankstiftung Y" on 30 December 2012 and on 27 January 2013 the taxpayer received a second capital payment of CHF 25,000 from "Bankstiftung Z". Both lump-sum payments were made under the title of the promotion of home ownership. Both bank foundations are foundations of tied pension provision pursuant to Art. 1 para. 1 let. b BVV3.

Question

How is the situation to be assessed from an income tax perspective?

Block 7: Precautionary issues in cross-border situations

Case 7.1: Cross-border contributions to foreign pension schemes

Facts

Mrs. Sonnentau, German citizen, lives in Switzerland and is employed here as a dependent employee. She is subject to Swiss social security legislation and pays AHV contributions and contributions to a Swiss pension fund. It also makes monthly payments to a German pension fund. Mrs. Sonnentau has a large coverage gap in the Swiss pension plan. The contributions made to the German pension scheme to date are lower than the coverage gap in the Swiss pension plan. Ms. Sonnentau is therefore of the opinion that the contributions are deductible.

Questions

Is Mrs. Sonnentau right and can the contributions paid to the German pension fund be allowed as deductions?

Case 7.2: Cross-border benefits from foreign pension schemes

Facts

The 60-year-old Mrs Roy has recently moved to Switzerland. She previously lived and worked in Canada. During this time she paid contributions into a Registered Retirement Savings Plan (RRSP). She decided to dissolve the RRSP and have all her savings paid out.

The RRSP assets are part of the Canadian pension system. The plans have the following key data:

• Non-self-employed workers and self-employed persons can make voluntary contributions.
• The deductible contributions are limited in amount. The maximum amount is reduced for persons who are affiliated to a Canadian Registered Pension Plan (RPP).
• The contributions paid in may be deducted from taxable income.
• Until the credit is drawn, the accrued income is tax-free.
• Contributions can be made until the year in which the taxpayer reaches 71 years of age.
• The credit can be withdrawn at any time.
• However, at the end of the year in which the person reaches 71, the balance must either be drawn, transferred to a Registered Retirement Income Fund (RRIF) or converted into an annuity.
• The disbursement of the credit balance is generally taxable.
• There are two exceptions to the taxation of a credit: the money is borrowed to buy a house or for higher education. These loans are limited in amount and must be re-inserted into the RRSP within a specified period.

Question

Can the credit be taxed in Switzerland when paid out?

Case 7.3: Cross-border benefits from Swiss pension funds

Facts

Mr. Müller works as a clerk at A AG in the canton of Basel-Land and lives with his family in Solothurn. He is insured with his employer's pension fund for both mandatory and non-mandatory occupational benefits.

Mr. Müller is looking for a new job and is offered a position at the European Patent Office in Munich. Mr. Müller terminates his employment with A AG, BL, on

31 December 2017 and moves with his family to Munich, where he will take up his new position on 1 February 2018.

Mr. Müller is insured against the risks of old age, death and disability with his new employer in Germany. At the beginning of 2018, Mr. Müller's credit balance will be transferred to the pension scheme of his new employer in Munich.

Questions

1. Can a pension credit balance with a Swiss pension fund be transferred to a foreign pension fund without tax consequences?
2. Can Mr. Müller demand cash payment of the mandatory retirement assets if he leaves Switzerland permanently and takes up employment in Germany?
3. What tax consequences must Mr. Müller expect?

Case 7.4: Crediting of foreign pension assets

Facts

Mr. Smith, a British citizen with previous residence in Great Britain, receives an unlimited employment contract with a Swiss bank and decides to move permanently to Switzerland.

With his previous British employer he was insured in a "Pension Plan" of the employer and has a credit balance of CHF 300,000.

Mr. Smith is considering transferring this pension asset to a Swiss pension fund. Specifically, he would like to transfer the credit balance of CHF 300,000 from the pension plan to the pension scheme of his new employer. Alternatively, he is considering transferring the credit balance to a vested benefits account with a bank foundation.

On the basis of his salary (insured earnings CHF 150,000) and his age, the maximum possible retirement assets according to the regulations of the new employer's pension fund at the time of joining are CHF 600,000.

Questions

1. Is it possible to transfer the credit balance from the British pension plan to the pension scheme of the new employer in Switzerland?
2. In particular, is it possible to transfer foreign pension benefits to a vested benefits account in Switzerland?
3. What are the tax consequences of a transfer of foreign pension funds to a Swiss pension fund?
4. What are the tax consequences of a later payment of the contributed pension funds as a result of a permanent move abroad or retirement?
5. Which pension law principles must be observed when purchasing further existing gaps in coverage in the Swiss pension fund?