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The three-year lock-up period for purchases and lump-sum benefits from different pension schemes
Purchases into a pension plan can be deducted from income for tax purposes. There are subsequent tax consequences if a lump-sum withdrawal is made from the pension plan within the next three years. If a person makes a purchase into his or her occupational pension plan and draws a lump-sum benefit from a vested benefits account at another pension plan within three years, the question arises as to whether this previous purchase must also be corrected for income tax purposes.
The Federal Law on Occupational Retirement, Survivors' and Disability Pension Plans (BVG) stipulates in Art. 79b Para. 3 that in the case of purchases made into a pension scheme, the resulting benefits may not be withdrawn from the pension scheme in the form of capital within the next three years. Since a violation of this so-called blocking period has consequences under tax law, the question regularly arises in connection with Art. 79b para. 3 LOB as to whether, in the case of occupational pension plans, a direct connection between a specific purchase and a specific lump-sum withdrawal is required or whether a consolidating overall view must be taken.
The issue can be illustrated by the following facts, which formed the basis of the Federal Court ruling 2C_6/2021 of January 12, 2021:
A taxpayer was employed in the 2016 tax period. On October 21, 2016, he made a purchase of CHF 45,000 into his occupational pension plan (Personalvorsorge X des Kantons Z), which he later took into account in the tax return for the 2016 tax period to reduce tax. On April 9, 2019, the taxpayer withdrew a lump-sum benefit of approximately CHF 20,800 from his vested benefits account with life insurance company Y, which he had invested in connection with another gainful activity. The cantonal tax office later issued post-tax rulings for direct federal tax and state and municipal taxes. In these rulings, it offset the amount of approximately CHF 20,800 against the legally binding assessment rulings for the 2016 tax period, which it justified by stating that a violation of the three-year retention period had occurred to this extent. The taxpayer had unsuccessfully argued that special circumstances existed due to the reduction of the pension conversion rate as of January 1, 2017 and the transitional provision with vested rights guarantee.
According to the case law of the Federal Supreme Court, the vesting period pursuant to Art. 79b para. 3 sentence 1 BVG is objectified and applies in the same way to all forms of capital withdrawals from the second pillar. There is no room for an examination of the individual concrete motives. A consolidated overall view of the occupational pension plan (pillar 2) must be taken. The tax deductibility of the purchase does not apply even if the capital benefit is withdrawn from another pension scheme. With regard to the aforementioned facts, the three-year blocking period was thus violated.
In terms of tax law, a breach of the retention period means that the lump-sum benefit remains subject to privileged taxation in accordance with the usual rules and the deduction of the purchase made at the time must be neutralized to the extent of the lump-sum benefit received. If the purchase has already been legally assessed, the correction must be made in the after-tax procedure; in all other cases, the purchase is not allowed as a deduction in the open assessment procedure.
The background to this case law on the consolidating overall view is that the Federal Supreme Court has always not allowed the purchase into the occupational pension plan if there is tax avoidance. This is the case if abusive tax-minimizing purchases and lump-sum withdrawals are made to and from pension funds that are close in time and do not aim to close contribution gaps, but rather misuse the 2nd pillar as a tax-privileged "current account". The goal of purchasing contribution years is to build up or improve the occupational pension plan. However, this goal is obviously missed if the same funds are withdrawn from the pension fund a short time later - with hardly improved insurance coverage.
Despite the clear case law of the Federal Supreme Court, it is not impossible for a tax authority to waive the collection of additional tax on the purchase in the case of a violation of the retention period. Special circumstances are required. In particular, if the lump-sum withdrawal could not be expected at the time of the purchase, such as in the case of an unexpected termination by the employer, due to which the pension assets must be withdrawn in whole or in part in lump-sum form.
It is important to know that any purchase into the occupational pension plan made during the blocking period must also be excluded from the tax deduction retrospectively. It is therefore irrelevant in which order capital withdrawal and capital payment take place. On the other hand, tied pension plans (pillar 3a) are not included in the consolidation.
For taxpayers, there are interesting tax optimization opportunities within the framework of occupational pension plans. However, to avoid income offsets, purchases and capital withdrawals should be planned carefully and with foresight.
This article has already been published in CORE-Newsletter 30 of December 2021.
