Dispute over tax advantages and Ettlin Motion

The wheels of Swiss politics grind slowly. A lesson in this is the motion “Enable purchases in Pillar 3a”, the so-called Ettlin Motion.

It was submitted in June 2019, and after a long back and forth, it is still not clear whether voluntary, subsequent payments into Pillar 3a will now be possible or not.

Significant tax savings possible

Pillar 3a is the tied private pension scheme in the Swiss pension system. Anyone who is a member of a pension fund can currently pay 7,056 francs per year and in return benefits from significant tax advantages.

Self-employed people without a pension fund can even transfer 35,280 francs, or a maximum of 20 percent of their net income per year, into Pillar 3a. This is the situation for 2024; next year, the maximum tax deductions in Pillar 3a will even rise to 7,258 francs, or 36,288 francs.

In the past, many savers have not used this scope for tax savings, or have only used it to a limited extent. This is where the Ettlin motion came in: it wanted to enable them to catch up on missed payments. The Federal Council, in turn, decided last November that such Pillar 3a purchases should be possible – but its draft regulation deviated significantly from the text of the Ettlin motion.

The state government sent the relevant changes to the ordinance out for consultation. In contrast to the Ettlin motion, the draft stipulated that gaps in Pillar 3a could only be closed if the person concerned could prove that they had earned income subject to AHV contributions in the year in question. In addition, the Federal Council reduced the potential amount of purchases in Pillar 3a in the draft ordinance. Existing Pillar 3a gaps should not be able to be filled by purchases, only future ones.

Criticism of the Federal Council’s draft

The relevant parliamentary committees have now commented on the Federal Council’s draft regulation. In mid-August, the National Council’s Social Security and Health Committee (SGK-N) recommended that the Federal Council adhere to the wording and justification of Ettlin’s motion by 16 votes to 9. In the committee’s opinion, purchases of up to 35,280 francs in Pillar 3a should be possible every five years. Pension gaps should be able to be closed retroactively from the age of 25, and this should also be possible for years without income subject to AHV contributions.

The FDP National Councillor Andri Silberschmidt was behind the proposal. He is curious to see how the Federal Department of Home Affairs (FDHA) will implement this, Silberschmidt said when asked. The FDHA took a long time to draw up the draft regulation and he hopes that a decision will be made soon.

The Finance Committee of the National Council (FK-N) also discussed the issue. It voted 13 to 12 in favor of suspending the bill. The implementation planned by the Federal Council would lead to “significant, but not precisely quantifiable, shortfalls in revenue,” it said. A financial policy decision with unforeseeable consequences could only be made once a comprehensive picture of the financial framework was available. It also spoke in favor of implementation at the legislative level, not at the ordinance level as currently planned by the Federal Council.

The Federal Council is now in charge

“The ball is now in the Federal Council’s court,” said Erich Ettlin, the father of the motion, in an interview. The question now is whether the Federal Council will stick to its draft regulation or change it. It is unfortunate for the plan that it comes at a time when impending deficits in the federal budget are a major public issue.

“It is totally unclear how it will turn out,” says Marcel Rumo, president of the Swiss Pension Association (VVS), who is pushing for the implementation of the Ettlin motion in its original form. If it is suspended, the motion would be put on the back burner again, possibly for several years, he says.

In the interests of the pension system, Rumo says he would prefer if the Federal Council stuck to its draft regulation – even if it differs significantly from the text of the Ettlin motion. The current efforts to cut federal budgets are undoubtedly making the discussion more difficult, and the cacophony surrounding the BVG reform is anything but helpful.

In the past, there has been significant criticism of the Ettlin motion in government circles. One criticism was that purchases in Pillar 3a would only benefit professional groups that do not really need support with their retirement provision. Since there have been no purchases in Pillar 3a to date, there can be no gaps. Anyone who wants to save taxes also has the potential to make purchases in the pension fund and should use this first, it was said.