Tax on life annuities 3b: what will change as of January 1, 2025

As of January 1, 2025, the taxation of 3b life annuities in Switzerland will undergo a major reform. This legislative evolution offers very advantageous taxation for life annuities, an ideal solution for those who wish to ensure a regular income for their retirement or pre-retirement. But what do these changes mean and how can you take advantage of them?

More favourable taxation for life annuities

Until now, life annuities were taxed at 40% on income. With the new law, which comes into force in 2025, the taxable portion of the guaranteed pension will now be calculated according to the maximum interest rate set each year by the Federal Financial Market Supervisory Authority (FINMA). For contracts concluded in 2024, this results in a taxation of only 1% of the guaranteed pension. Excess benefits, on the other hand, will be taxed at 70%.

Concrete example

Before 2025 : For an annual pension of 10,000 CHF, 4,000 CHF were subject to income tax.
From 2025 : For an annual pension of 10,000 CHF concluded in 2024, only 100 CHF will be taxable.

How will the new taxation of the Life Annuity be calculated?

The calculation of the tax rate for life annuities 3b is based on a Mathematical formula detailed in the Federal law on the taxation of life annuities and similar forms of pension provision. For those who want to consult the details, you can access the full legal text via this link: Fedlex.

In order to simplify the understanding of these new rules, we have created a table that shows the tax rates applicable for the year 2025 as well as for previous years.

The taxable portion of your guaranteed pension will depend on the technical interest rate in effect the year your contract was taken out. Here are a few examples:

Contracts concluded in 2024 : The tax rate will be 1% on the guaranteed pension, which is one of the most advantageous rates.
Contracts concluded in 2025 : FINMA's technical rate will increase to 0.35%, resulting in a tax rate of 4.00%.
Contracts prior to 2024 : The tax rate varies according to the technical rate at the time. Consult our table below to determine the rate applicable to your contract.

Surplus dividends, i.e. additional income generated by your insurance, will continue to be taxed at 70%, regardless of the year in which your contract was taken out.

This table gives you an overview of the tax rates calculated according to the year your policy was concluded and the current technical interest rate:

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In summary, the tax rate on your life annuity depends on the year in which the contract was concluded and the technical rate in force at that time. For contracts concluded recently, taxation is much more advantageous, especially for those who subscribe in 2024, with a minimum tax rate of 1%.

consultancy : If you plan to take out a life annuity, subscribing before the end of 2024 could allow you to benefit from the best possible tax conditions.

Why the change now?

The Swiss Parliament adopted this reform to adapt the taxation of life annuities to current economic realities and to offer greater flexibility to insured persons. The aim is to encourage individual pension provision by making pillar 3b life annuities more attractive from a fiscal point of view.

What does that mean for you?

Subscription opportunity in 2024 : If you are considering taking out a life annuity, 2024 could be the ideal time to benefit from the lowest tax rate.
Fiscal optimization : Lower taxation means you'll keep more of your pension, improving your net income in retirement.
Adaptation of existing contracts : Policies that are already in force will also have their tax rate adjusted according to the year the contract was concluded, which could reduce your current tax burden.

What can you do to benefit from it?

Get informed : Consult your financial advisor or insurance company to understand how these changes affect you.
Act quickly : If you are considering taking out a life annuity, consider doing so before the end of 2024 to take advantage of optimal tax conditions.
Analyze your options : Compare the different offers on the market to find the life annuity that best fits your financial needs and goals.

I already have a life annuity, how will it be taxed?

If you already have a 3b life pension, you are also affected by this reform. The taxable portion of your guaranteed pension will be recalculated according to the technical interest rate in effect the year you concluded your contract. This means that, even for existing contracts, taxation will generally be more advantageous than before.

This revision can lead to a significant reduction in your tax burden and increase your net retirement income. Consult our table below to find out the tax rate that will be applied to your life annuity.

Comparison with pension fund pension (LPP)

Pensions paid by pension funds (LPPs) are taxed at 100% as income. In addition, in the event of death, benefits for survivors are often limited (generally 60% of the pension for the spouse, and nothing for single or widowed or widowed). On the other hand, with a 3b life annuity with a capital return clause, the unused residual capital is paid to the heirs in case of premature death. This provides greater financial protection for your loved ones compared to the LPP.

Advantages and points of vigilance of a life annuity

Benefits

Attractive taxation : The drastic reduction in the taxable portion increases your net income.
Financial security : A life annuity ensures a steady income for life, eliminating the risk of longevity.
Protection of heirs : Unconsumed capital can be passed on to the heirs.
Flexibility : Possibility of customizing the pension according to your needs and your family situation.

Points of vigilance

Variability of offers : The annuities paid vary between insurance companies. It is crucial to compare solutions available on the market.
Tax complexity : The new tax calculation method can be complex. A good understanding is required to optimize tax benefits.
Professional advice : The importance of consulting a financial advisor to assess the benefits of a 3b life annuity in your specific situation.

The importance of personalized support when choosing a life annuity

Each financial situation is unique. A pension advisor can help you:

Assess your needs : Analysis of your overall situation to determine if a 3b life pension is appropriate.
Optimize your taxation : Maximize the tax benefits associated with the new legislation.
Compare offers : Select the insurance company offering the highest pension and the most favorable conditions.
Planning your estate : Ensure the financial protection of your heirs.

Conclusion on the Life Annuity

The tax reform for life annuities 3b as of January 1, 2025 represents an exceptional opportunity for people wishing to optimize and secure their income and capital in retirement. By benefiting from reduced taxation and increased protection for heirs, the 3b life annuity is establishing itself as a very attractive pension solution in 2024 and 2025.

— Source: Fedlex, Federal Council press release

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Taxation Life annuities 3b: New taxation in 2025