Why a New Tax on Life Annuities?
Before the new law on the taxation of life annuities, 40% of the annuity was considered a taxable income. This rule applied to all life annuities, regardless of amount. A motion was put forward in 2022 to change this law, which many saw as unsuitable because the taxation was too high and unsuited to the current tax environment.
Life Annuities: Definition
The life annuity is an insurance policy, paid for a certain period of time or until your death. To set up a life annuity, you'll need to contact an annuity provider. The purpose of life annuities is to supplement the 1st and 2nd pillars, in order to provide a stable standard of living for you and your family once you hit retirement age.
To set up these annuities, you'll need to work with a provider, to whom you'll pay a lump sum or regular instalments. The amount of annuity you can receive depends on a number of factors, such as :
- Age (the older you are, the higher the annuity)
- The amount initially paid
- Selected benefits
- Your benefit provider (some providers may pay higher amounts)
- When we say that an annuity exceeds the guaranteed amount, we mean that it yields more than originally planned.
The New Taxation of Life Annuities
Under the new law on the taxation of life annuities, the proportion of the annuity that is taxable will now depend on the type of contract chosen. It will also depend on the official interest rate set by the Swiss Financial Market Supervisory Authority (FINMA). If the annuity exceeds this amount, an additional portion will be taxed at 70%.
For life annuities that come from private contracts (excluding insurance) or from abroad: the tax will be based on the average yield on 10-year Swiss government bonds (an official financial indicator).
Consequences of the New taxation of Life Annuities
Reduction in Taxable Portion
Annuitants with low returns will see their taxable portion reduced, thus lowering their tax burden. The tax system will be better adapted to each individual's situation.
Reinforced Checks
The reform of the taxation of life annuities also provides for tighter controls. Insurance companies will be required to report annuity payments automatically to the tax authorities via the Federal Tax Administration, giving the cantons greater control over the verification of tax returns.
Impact on Inheritance
Another change affecting cantons concerns those that tax estates and other inheritances, which may have to amend their laws to take account of the reform on life annuities.
Tips for Optimizing the Taxation of your Life Annuities
To optimize your tax situation, compare different life annuity offers. Indeed, conditions vary according to the insurance company you choose, such as :
- Conversion rate
- Return options
- Fees
Choice of Annuity
Choose the right type of annuity to suit your family situation and needs. For example, there is a life annuity on one "head" ("tête") if you are single or on 2 heads (in the event of the death of the 1st spouse, the survivor will be the annuity beneficiary).
Another type of annuity called a "deferred life annuity" can also be purchased. The annuity will then be paid at a date of your choice and that of the insurer. This is similar to the 3rd pillar.
Frequently Asked Questions
What is a life annuity in Switzerland?
A life annuity is a form of insurance that pays you a regular income for a certain period of time, or until your death. It complements the 1st and 2nd pillars to maintain a stable standard of living in retirement.
Why buy a life annuity to top up your pension?
Taking out a life annuity means you can secure an additional income for retirement, in addition to your AHV (1st pillar) and occupational pension (2nd pillar) benefits.
What criteria influence the amount of a life annuity?
The amount depends on your age at the time of purchase, the capital invested, the options chosen (restitution, guarantees) and the insurer selected.
How do I set up a life annuity in Switzerland?
To purchase a life annuity, you must pay a lump sum or regular premiums to a specialized provider (insurance company or financial institution).
Which providers offer life annuities in Switzerland?
Life annuities are offered by insurance companies, banks and sometimes pension funds that provide private pension products.
What tax changes will apply to life annuities from 2025?
The taxable portion of an annuity now depends on the type of contract and the official FINMA interest rate. If the return exceeds a certain threshold, the excess portion is taxed at 70 %.
How is the taxable portion of a life annuity calculated under the new law?
It is calculated on the basis of the annuity's return compared with the official interest rate. Only the portion exceeding this rate is heavily taxed.
