Retirement provision in Switzerland – Vested benefits

When leaving the 2nd pillar pension plan, the insured person is entitled to a termination benefit (vested benefit) in accordance with the Vested Benefits Act, provided that no insured event has occurred. The most common case is a change of job. In this case, the vested benefits are transferred directly to the new pension fund. In the following cases, there is no direct transfer to a new pension fund and the insured person must join a vested benefits foundation:

• Prolonged stay abroad
• Unemployment
• Continuing education (full-time)
• Maternity leave
• Reduction in workload (annual salary falls below BVG entry threshold of CHF 21’510)
• Cessation of employment before reaching retirement age
• Change of job with longer interruption (sabbatical/time off)
• In case of divorce

Vested benefits can be invested within the framework of the legal requirements. In contrast to the pension fund, everyone bears the full investment risk. There is no minimum interest rate for vested benefits, but the full positive return also remains with the accountholder.

In the case of vested benefits, the risk coverage against death and disability granted to an insured person under the pension fund affiliation also expires. Only the claim to the payment of the capital remains. This can quickly lead to existential problems for young people and families. For this reason, risk insurance in the event of vested benefits should be examined to ensure that insurance coverage continues to be guaranteed.

Termination from the age of 58

A lifelong pension can also no longer be drawn. At retirement, the vested benefits capital is paid out and the pension recipient must manage their own money for the rest of their life. There has been an important change here since 2021 for everyone aged 58 and older. If an employee aged 58 or older is terminated by the employer, they have the option of remaining affiliated with the employer’s pension fund. This gives the terminated employee the same rights in terms of interest, conversion rate and pension as if they were still insured as an employee. The continuation must be requested in writing from the pension fund before the end of the notice period. The insured person is obliged to pay the risk contributions for protection against death and disability. The client decides whether savings contributions should continue to be paid in. Since the insured must pay the savings contributions of the employer and the employee, the specific amounts to be paid in must be clarified in advance with the pension fund. If the insured person remains in the pension fund for more than 2 years after termination, a lump-sum withdrawal is no longer possible and the retirement benefits are paid out exclusively as a pension. An early withdrawal or a pledge for residential property is also no longer possible. Any deviations from the respective pension fund regulations must be observed.

Tip for interruption of work of max. 6 months

In general, after leaving the pension fund, the vested benefits can still be kept with the pension fund for 6 months. During this time, interest is paid on the capital at the minimum interest rate. This solution is particularly suitable if the interruption does not last longer than 6 months. No vested benefits foundation offers an interest rate as high as the minimum interest rate of currently 1% (Mandatory segment). In addition, it is not advisable to invest the vested benefits in securities for a few months, as the fluctuation risks are far too great. After the 6 months, the vested benefits must be transferred to a pension fund or a vested benefits foundation. Otherwise, the pension fund will transfer the vested benefits to the BVG supplementary institution.

Splitting of vested benefits

When paying out vested benefits from the pension fund, possible splitting must also be taken into account. This is because splitting to several vested benefit relationships is only possible at the time when the pension fund pays out the assets. A vested benefits relationship can subsequently no longer be split between several vested benefits relationships.

If it is clear that no new employment relationship will be entered into and the vested benefits are to be withdrawn later as a lump sum, the assets can be paid out once to two different vested benefits foundations when the pension fund pays out. This offers the advantage that the withdrawal in old age can be spread over different years, thus breaking the tax progression and saving taxes.

Advantage of VIAC

VIAC offers the possibility of investing vested benefits efficiently and cost-effectively. The most important distinguishing feature is the segmentation of vested benefits into the mandatory and the extra-mandatory segment. This has the advantage that different investment strategies can be selected for the two segments. In addition, a pure equity strategy can be selected for the extra-mandatory segment, which is not possible in the mandatory segment or if the two segments are mixed. A clear advantage of VIAC is also that in the VIAC base strategies, investments are not made in bonds in the current low interest rate environment, as the return after costs is often negative and the interest rate risks taken are not (or not sufficiently) compensated. The bond part is replaced by a fee-free cash part in the VIAC base strategies. This way you are not exposed to unnecessary interest rate risks and you do not pay any management fee on the cash part at VIAC, which reduces your total costs accordingly.