Vested benefits and occupational benefits insurance: Key points

You're leaving the company and there will be a gap before you start a new job. What happens to the assets in your pension fund now? We answer the key questions about vested benefits.

Occupational benefits insurance (Pillar 2) in Switzerland

Pillar 2 is part of the three-pillar system in Switzerland. It is used to ensure that your accustomed standard of living can be maintained in the event of disability and during retirement. In conjunction with the Pillar 1, it should cover around 60% of your last gross salary. During employment, employers with social insurance obligations as well as employees pay into Pillar 2 for pension provision.

In contrast to Pillar 1, you save your own retirement capital in Pillar 2. This money is managed and increased by a pension fund on a fiduciary basis during a savings period between the ages of 25 and 65. During this time, the money remains tied to its specific purpose in Pillar 2. This means you cannot access it freely. Thanks to the compound interest effect, every franc you pay in over those 40 years or so counts. The more interest you receive on the interest in subsequent years, the faster the total capital will grow, and with it your eventual, individual retirement assets.

What are retirement assets? 

Provided that you are earning more than CHF 22,050, you and your employer pay a percentage of your salary into your pension fund each month. The total amount you save in your pension fund during the savings period is known as retirement assets. They consist of the following:

• All the savings contributions paid in by the employer and the employee
  
• Any purchases
  
• Interest on the assets
  
• Less any withdrawals (e.g. to purchase a home)
  

What are vested benefits?

When you leave a pension fund – when changing employers, for example – your retirement assets are turned into vested benefits. As soon as you start a new job, you must transfer your vested benefits into your new employer’s pension fund.

Perhaps you aren't starting a new job immediately. For example, because you are spending time with your family, traveling the world, undergoing further training, or not wanting to rush your job search. In such a case, you have the following options for depositing your vested benefits:

• Open a vested benefits account
• Open a vested benefits custody account
• Take out a vested benefits policy
• Submit an application to the National Substitute Pension Plan Foundation

There is one exception: If you are over 58 years old and lose your job, you have a choice. Your occupational benefits institution must give you the opportunity to leave your retirement assets in the pension fund of your former employer. However, you can also put your vested benefits into a vested benefits solution yourself.

By the way, if you receive pension fund assets in a divorce settlement, these also become vested benefits.

Which is better – a vested benefits account or a vested benefits custody account?

Ask yourself: How long do you expect to keep the money in a vested benefits solution? If you simply need an interim solution for up to six months, you can leave the money in your old pension fund. However, if it will be more than six months before you transfer the money into a pension fund again, a vested benefits account is recommended.

With a fairly long investment horizon it may be worth investing the vested benefits in securities. That's what a vested benefits custody account is for. Although the money is subject to fluctuations in value, higher returns are nevertheless possible over the longer term. There are different investment solutions depending on your strategy and risk tolerance.

How do I open a vested benefits solution? 

Decide on the appropriate vested benefits solution with a financial or insurance institution of your choice. Both options, a vested benefits account and a vested benefits custody account, are usually on offer.

You also need to bear in mind that with a pension fund, employees don’t simply save for their retirement but are also insured against risks such as disability and death. As soon as a person no longer has a job, they have to protect themselves against these risks if necessary. The same applies to accidents, since accident insurance is no longer covered by the employer. These risk elements can also be covered by a vested benefits solution, depending on the provider. You should therefore compare the offers carefully.

Many institutions allow you to open a vested benefits account or vested benefits custody account online. If you are unsure about anything, a consultation is advisable. When you have opened the vested benefits solution, you need to have your vested benefits transferred. You have six months in which to tell your old pension fund where to transfer your vested benefits. If it does not hear from you, the old pension fund will transfer your assets to the BVG National Substitute Pension Plan Foundation.

Please note: The money cannot be transferred to an ordinary account. The vested benefits remain tied to their specific purpose in the form of an account or custody account, until the person concerned joins a new pension fund or retires.

Can I split the vested benefits?

Yes. The vested benefits may be split between up to two different vested benefits solutions. This needs to be actioned when the withdrawal benefit is paid out – splitting the assets is no longer possible afterwards.

A split has the following advantages:

• You can benefit from several offers and solutions – such as paying part of the total into an account and investing the rest in securities.
• When a pension becomes payable, the assets can be paid out in stages. In some circumstances you could therefore save a considerable amount of money through not incurring a higher tax rate.

When can I have my vested benefits paid out?

Assets in Pillar 2 must remain within a pension structure until you retire. The assets cannot be freely accessed until then.

In the following exceptional cases, the money can be paid out before normal retirement:

• In the case of early retirement, no earlier than five years before you reach pensionable age
• Within a year if you become primarily self-employed
  
• On permanent departure from Switzerland (emigration) in order to move to a non-EU/EFTA country
  
• Every five years, for the purchase of owner-occupied residential property (the retirement assets may be withdrawn partially or fully up to the age of 50 – after that, only a partial withdrawal is possible). If you then save up again and want to close any pension gaps, you can pay this money back
• In the case of a low balance (the vested benefits are less than your annual contribution to the pension fund)

A payout is taxable and must be entered on your tax return.

In order for retirement assets to be paid out, the following are also required:

1. Signature of your spouse or registered partner
   
2. Official documentation such as proof of self-employment, confirmation of emigration, or purchase contract for residential property
   

It is important to note that a withdrawal of retirement assets results in reduced or absent benefits later. This can have a significant financial impact on occupational pensions, especially during retirement but also in the event of disability or death.

I've lost track of my pension fund assets – what can I do?

Have you changed jobs several times and are now unsure where your pension fund assets are? The Second Pillar Central Office is a government institution that searches for pension assets. Everyone with pension assets is reported to it each year. Use this opportunity to search for vested benefits. Enquiries may be made by submitting an application by post or email, free of charge. Owners of a vested benefits solution are entitled to their money up to their 100th birthday. Enquiries may also be made on behalf of third parties, such as following a death.

This is all too complicated for me

At first sight, vested benefits and pensions seem to be complex and confusing topics. Don't let it faze you – there’s an appropriate solution for all your concerns. Also important to know: You don't have to act immediately – you have at least six months before your vested benefits are transferred to the National Substitute Pension Plan Foundation. And if you’ve found a new job by then, your vested benefits can be transferred directly to the new pension fund.

The following tips will help you find the right vested benefits solution:

1. Feeling overwhelmed? First of all, decide on a vested benefits account or a vested benefits custody account. You can change the institution and pension solution at any time.
   
2. Are you at least 58 years of age? You are allowed to stay with your old pension fund.
   
3. Do you wish to benefit from several solutions? Split your vested benefits between two vested benefits accounts or custody accounts.
   
4. Have you lost track of your pension fund assets? Contact the independent Second Pillar Central Office – find out what’s happened to your pension fund assets, easily and at no charge.
   
5. Has your money been transferred to the BVG National Substitute Pension Plan Foundation? It hasn’t been lost and you can change your vested benefits solution at any time.