What is a vested benefits account?
A vested benefits account in Switzerland is an account that is used to manage pension assets if, for example, a person terminates their employment and does not take up a new job or leaves Switzerland. This account secures the pension fund assets and ensures that they remain available for retirement provision. It is held at a vested benefits foundation and earns interest.
The account is particularly important to ensure that the pension assets are not lost or misappropriated if someone is temporarily not insured in a pension fund. The money can also be withdrawn early under certain conditions, such as when emigrating or becoming self-employed. The vested benefits account therefore enables flexible and secure management of pension assets outside of a permanent employment relationship. This account plays a central role in Swiss pension provision and contributes to financial security in retirement. FZG/FZV
However, if you do not take care of your funds yourself, for example if you change jobs without immediately re-entering the country or leave Switzerland permanently, they will end up with the Substitute Occupational Benefit Institution, where the interest rate is rather low.
Interest on the Substitute Occupational Benefit Institution 2024
- Vested benefits accounts earn interest at 0.40 %
- The following interest rates apply to BVG pension plans:
- The mandatory retirement assets earn interest at 1.25 %.
- The extra-mandatory retirement assets earn interest at 1.25 %.
- The additional account balance earns interest at 0.40 %.
It is now common knowledge that inflation has been significantly higher than the interest rate in recent years. This means that your money, which may be earmarked for retirement, is losing purchasing power every year instead of increasing.
Vested benefits account for cross-border commuters and expats
It can be assumed that a not insignificant portion of the aforementioned, unallocated 5.6 billion from 2022 comes from people who worked in Switzerland for a certain period of time and later left the country again. Experience has shown that it is not only Swiss nationals who believe that the state takes care of this, but that this misconception is particularly prevalent among expats and cross-border commuters. Many do not realise that personal initiative is required here.
So if you are not interested in your 2nd pillar assets after moving back home or to the next location, these are usually transferred to the Substitute Occupational Benefit Institution after 6 months at the latest. Some people probably know that the money is parked there, but not what options there are for optimising it.
Many vested benefits foundations offer the option of investing your assets. Although the value of the assets may fluctuate as a result, experience has shown that the long-term return is significantly higher than on a vested benefits account and you can determine the strategy yourself according to your needs and circumstances. You also have a transparent overview of your pension assets at all times.
Would you like to know whether and where you have any vested benefits assets in Switzerland? We would be happy to take over the search for you and support you in the process. Get in touch now
Splitting into 2 vested benefits accounts
If you are about to leave a pension fund, you have the right to have your vested benefits divided up (Art. 12 para. 1 FZV). Your vested benefits can be transferred to two different vested benefits institutions. Caution: this splitting is no longer possible retrospectively. Once the funds are in a vested benefits account, they can only be transferred as one account in future. Splitting can also make sense if the new employer's pension fund is at the statutory minimum or has a low coverage ratio, for example. This allows you to remain flexible and keep part of it invested.
The following advantages result from the division:
- Tax savings through staggered withdrawal of pension assets analogous to pillar 3a
- More flexibility in the investment of vested benefits assets
- Part to a vested benefits account
- Another part invest in
- Option to buy back into a new pension fund
- Contribute a portion to a new pension fund - invest the other portion in a self-determined manner
- Less impairment due to redistribution effects
Pension assets when moving abroad
It is widely known that pension assets can be paid out from the extra-mandatory portion in the event of a permanent departure from Switzerland.
The payout is subject to taxation at the domicile of the pension foundation (withholding tax) and not at the last place of residence. Less well known, however, are the foreign tax laws that can make such payouts an expensive affair. This withholding tax can be reclaimed using a form from the country in question, provided it can be proven that the lump-sum payment was taxed in the new country and that this is provided for in the double taxation agreement with the respective country of residence. The capital received is then subject to the tax laws of the country of residence.
Payment of pension assets from the pension fund in Germany on normal retirement:
In accordance with the German Retirement Income Act, payments from the pension fund have been taxable in Germany throughout since 2005. Initially, 50 % of the amount paid out was subject to German tax. This taxable portion was increased by 1 % per year until 2020 and by 1 % from 2021. From 2040, the entire amount will be taxable. The amounts are automatically reported to the relevant tax office using the withholding tax exemption procedure described above.
The taxation of the non-compulsory portion must be assessed separately. Lump-sum benefits from a pension insurance policy with a lump-sum option should be treated like an endowment policy. This can be fully or partially tax-free. Even if you move from Switzerland to Germany or transfer the funds due to a divorce. Under certain circumstances, the interest portion of the payout amount may be taxable as income from capital assets.
Payment of pension assets from the pension fund in France on ordinary retirement:
Since 2011, lump-sum withdrawals from Swiss pension funds have been subject to French tax for persons living in France. The entire withholding tax withheld is refunded to taxpayers if they submit the completed official form "Application for refund of withholding tax on lump-sum benefits from pension funds domiciled in Switzerland" within three years of the due date. This notifies the competent tax authority in their foreign country of residence of the lump-sum payment.
The taxation of a capital payment under private law in France is very complex and often cannot be answered in general terms, as the French tax authorities have introduced various taxation options.
Conclusion: When planning a pension with relocation to Switzerland, it is always advisable to consider the tax and pension laws in your future country of residence and to examine alternatives.
FINBERG not only helps you with the search for lost funds but also accompanies you after a move to Switzerland and supports you in finding your way around the pension system, points out risks and opportunities or remains at your side as a contact person after moving abroad. If this report is helpful for you or your friends, we look forward to hearing from you. Contact us.