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Taxation of pensions upon succession from 1 January 2021

No tax liability arises upon acceptance of the succession. Tax liability may arise upon realization of the inheritance.

In particular, when inheriting the II or III pillar, the successor must decide whether to add them to their respective pillars or to withdraw the inherited amount as money.

  • In case the successor combines the inherited II or III pillar fund units with his/her own pillars, these are in his/her II or III pillar and future payments from there are taxed according to the II or III pillar rules.

  • If the bequeather had entered into a pension or insurance contract with a guarantee period, this means that the payments provided for in the contract shall be made to the beneficiary during the guarantee period. However, for the beneficiary, the payment is not a pension but "other income" and therefore the payments are normally taxed at an ordinary rate of 20%.

  • In case the successor withdraws the inherited II or III pillar fund units in money, the payment is „other income“ for him/her and is taxable at the normal rate of 20%.
  • In case the bequeather had entered into a pension contract or insurance contract without a guarantee period in which there are no beneficiaries, no payments shall be made to the successors under that contract.

The table below explains the taxation of pensions in case of succession.

II pillar or mandatory funded pension
III pillar or supplementary funded pension

When making mandatory funded pension payments, the following may be applied:

  • pension contract,

  • fund pension,
  • one-time disbursement, or
  • combinations of the previous ones.

When making supplementary funded pension payments, the following may be applied:

  • insurance contract,

  • fund pension,

  • one-time disbursement, or

  • combinations of the previous ones.

In case of a pension contract:

  • a lifetime or fixed-term pension shall be paid.

In case of an insurance contract:

  • a lifetime or fixed-term pension is paid, or

  • a one-time dispursement shall be made.

Under the pension contract, the pension is paid until the death of the pensioner, after that no further payments will be made to the successors.

Under the insurance contract, the pension is paid until the death of the policyholder, after that no further payments will be made to the successors.

Specificity

In case a person had entered into a pension contract or insurance contract with a guarantee period and dies during the guarantee period, the beneficiary specified in the contract shall be provided with:

  • payments which continue until the end of the gurantee period, or

  • a one-time disbursement.

Payments or one-time disbursements made to the beneficiary until the end of the guarantee period are subject to income tax at the rate of 20%.

In case of a funded pension:

  • a pension shall be paid periodically.

The difference between a funded pension and a pension contract or insurance contract is that in the event of the death of a unit-holder:

  • the fund units are freely inheritable, and

  • the fund units are also inheritable if the unit-holder dies before the start of the pension payments.

 

In the event of the death of the policyholder before the start of pension payments, it is possible that the beneficiary shall be paid the accumulated reserve from the insurance contract.

Payments made to a beneficiary are subject to income tax at the rate of 20%.

Death insurance benefit is tax-free.

In case the successor has joined a mandatory funded pension or receives a mandatory funded pension himself/herself, the successor has the right:

  • to transfer the inherited fund units to his/her pension account, or

  • to withdraw the fund units in money (a one-time disbursement shall be made), or

  • to transfer part to his/her pension account and part to withdraw in money.

The successor has the right:

  • to transfer the inherited fund units to his/her pension account, or

  • to withdraw the fund units in money (a one-time disbursement shall be made), or

  • to transfer part to his/her pension account and part to withdraw in money.

A one-time disbursement made to a successor is subject to income tax at the rate of 20%.

In case the successor transfers the inherited fund units to his/her pension account, he/she is entitled to receive at the II pillar pension age:

  • a one-time disbursement or short-term periodic payments subject to income tax at the rate of 10%, or

  • a lifetime or long-term periodic payments that are tax-free.

In case the successor transfers the inherited fund units to his/her pension account, he/she is entitled to receive at the III pillar pension age:

  • a one-time disbursement or short-term periodic payments subject to income tax at the rate of 10%, or

  • a lifetime or long-term periodic payments that are tax-free.

In case the successor has not joined the mandatory funded pension, the successor has the right to:

  • withdraw fund units in money (a one-time disbursement shall be made).

A one-time disbursement made to the successor is subject to income tax at the rate of 20%.

In the event of the bankruptcy of the unit-holder's estate, the fund units will not be transferred to the successors, but the money received from the units would be used to pay the bequeather's debts in the bankruptcy proceedings.

 

17.12.2020