Withdrawal of the Second Pillar LPP for Cross-Border Workers

Context

TL;DR

• A resident of Italy who is compulsorily insured there can take only the extra-mandatory part of the second pillar in cash (art. 25f LFLP).
• In Italy the LPP capital is taxed at 5%; the Swiss withholding tax can be refunded.
• Strategic timing and expert consultation are crucial to minimize tax burden.

Key facts

• Cosa: Withdrawal from the second pillar LPP pension fund.
• Quando: Starting from 2026.
• Dove: Ticino, Switzerland, for cross-border workers.
• Chi: Cross-border workers employed in Ticino.
• Importo: No CHF 50,000 cap: the whole extra-mandatory part can be withdrawn, while the mandatory LPP part stays in a vested benefits account until retirement age (at the earliest 5 years before).
• Scadenza: The LPP Guarantee Fund checks the insurance in Italy at the earliest 90 days after departure; the withholding tax refund must be claimed within 3 years of the payment.
• Consulenza: Consult tax experts to evaluate specific situations.

In 2026, cross-border workers employed in Ticino may face the complex issue of withdrawing from the second pillar LPP. This pension fund, mandatory for workers in Switzerland, offers various withdrawal options under specific circumstances. The law allows a withdrawal on leaving Switzerland for good, which for a cross-border worker means ending their gainful activity in Switzerland, on buying a home and on retirement. A simple need for cash is not enough: the Federal Social Insurance Office (FSIO) states that second pillar capital cannot be withdrawn to repay debts. It is crucial to understand that the withdrawal from the second pillar is not an automatic process. Since 1 June 2007, anyone living in an EU or EFTA state, Italy included, who is compulsorily insured there for old age, invalidity and survivors cannot take the mandatory LPP part in cash (art. 5 and 25f LFLP): it is paid at the ordinary retirement age or at the earliest five years before. The extra-mandatory part, however, can be withdrawn. For Italy, the LPP Guarantee Fund checks the insurance obligation at the earliest 90 days after departure from Switzerland. Taxation is also lighter than often claimed: in Switzerland the pension institution withholds the source tax of the canton where it has its seat, which can be refunded, and in Italy the capital is taxed at 5%. For cross-border workers, a critical aspect is timing: it is advisable to make the withdrawal at strategic moments to minimize taxation. Proper planning can help optimize the amount received and ensure easier access to funds in case of need.

Operational details

For cross-border workers, the tax regulations regarding the withdrawal of the second pillar LPP are complex. In Switzerland, capital paid to someone who does not live there is not added to income: the pension institution withholds a source tax using the scale of the canton where it has its seat. If the institution is based in Ticino, the VIC table in force since 1 January 2025, the latest published by the canton, sets a tax of CHF 1,877.50 on CHF 50,000 for a single person (about 3.8%) and CHF 1,827.50 for other taxpayers. For benefits from private-law institutions, the Switzerland-Italy double taxation convention (art. 18) gives the taxing right to Italy: the Swiss tax is refunded with form Q-IS, filed with the canton where the institution has its seat within three years of the payment, together with the Italian tax authority's certificate that the benefit was actually taxed. Italy does not apply progressive taxation: LPP benefits built up also with contributions taxed at source in Switzerland, in whatever form they are paid, are taxed at 5%. If the capital is paid into an account at an Italian bank, the bank applies a final withholding tax, provided it is instructed with the tax residence, the LPP nature of the sums and the gross amount; if it is credited abroad without an Italian intermediary, paragraph 1-ter added by the 2023 Budget Law provides a 5% substitute tax in the tax return (art. 76, paragraphs 1-bis and 1-ter, Law 413/1991). On the CHF 50,000 of the example, the Italian tax therefore equals CHF 2,500, converted into euros; a single person who does not claim the Swiss refund pays CHF 4,377.50 in total, about 8.8%. It is essential for cross-border workers to consult tax experts to evaluate their specific situation and plan the withdrawal strategically. The request does not go to cantonal offices but to the pension or vested benefits institution, after gainful activity in Switzerland has ended and, for married people, with the spouse's written consent. It is advisable to start tax planning and the withdrawal process at least six months prior to the intended exit date.

Key points

💡 Practical tips for withdrawal:

• Ask your pension institution how much of your assets is mandatory and how much extra-mandatory: if you are compulsorily insured in Italy, you can take only the latter straight away.
• The assets are not transferred to the Italian social security system: the part that cannot be withdrawn stays in Switzerland in a vested benefits account or policy.
• Consult a tax expert to analyze the tax implications of the withdrawal.

Moreover, it is useful to utilize online tools such as the pension planner to calculate the impact of the withdrawal on your total savings. Remember that good planning can make a difference in your financial future. Sources: FSIO, withdrawing LPP capital when leaving Switzerland, in Italian, FSIO, no withdrawal to repay debts, in Italian, LPP Guarantee Fund, cash payment when leaving for abroad, in Italian, Canton Ticino, VIC table from 1 January 2025 for single persons and for other taxpayers, Federal Tax Administration, refund form Q-IS, Federal Tax Administration, leaflet on source taxation of private-law pension benefits, in German, Switzerland-Italy double taxation convention of 9 March 1976, art. 18, Agenzia delle Entrate, resolution 3/E of 27 January 2020 and Law no. 197 of 29 December 2022, art. 1, paragraph 77.