Swiss Vested Benefits Accounts Explained

When you are employed in Switzerland, you are normally required to participate in your employer’s occupational pension fund. During periods when you do not have a pension fund – due to unemployment, for example – you have to move the benefits from your former employer’s pension fund to a vested benefits solution. This guide answers the most important questions about vested benefits accounts.

What is a vested benefits account?

A vested benefits account is a bank account in which Swiss pension fund benefits are held in trust by a vested benefits foundation during periods when you are not attached to a Swiss occupational pension fund. This is required by Swiss law. When you become employed in Switzerland again, you must transfer your vested benefits to your new employer’s occupational pension fund.

Important: Vested benefits accounts can only be used to hold benefits that you have already accumulated while you were employed. It is not possible to make additional payments or voluntary contributions into your benefits once they are vested.

Who offers vested benefits accounts?

Vested benefits accounts are offered by Swiss banks in collaboration with vested benefits foundations. Many vested benefits foundations are subsidiaries of banks, but there are also foundations that are independent from banks. 

How much interest will I earn on my vested benefits?

Interest rates vary between offers. If you have a substantial amount of Swiss pension fund benefits, even small differences in interest rates can make a big difference. The interactive vested benefits account comparison on moneyland.ch makes it easy to find the most favorable account.

Note that unlike occupational pension funds, there is no minimum interest rate for vested benefits accounts. The interest rate of a vested benefits account can be lowered to where it does not yield any interest at all. Only negative interest rates are not allowed, and that sets vested benefits accounts apart from regular private accounts and savings accounts. However, vested benefits accounts can charge percentage fees that are akin to negative interest rates for customers.

Which fees apply to vested benefits accounts?

Some service providers charge basic, ongoing account fees for vested benefits accounts. These may be called administrative fees or flat fees. The typical fee, for accounts that have them, is three francs per month (36 francs per year). Depending on the interest rate and the size of your account balance, these fees may result in a loss over time. The interest rate is often the more important factor, especially if you have a large amount of pension benefits. Using a service provider that pays high interest is often more profitable even if they charge account fees.

Other fees primarily apply to withdrawals. Fees can vary depending on what kind of withdrawal you make.

Tip: The vested benefits account comparison on moneyland.ch gives you a good overview of the fees charged by different service providers.

How secure are vested benefits accounts?

Vested benefits accounts are not covered by the Swiss bank depositor protection scheme. However, 100,000 francs per customer and vested benefits foundation are still designated as privileged assets in the case of a bank insolvency.

When you leave a pension fund, you are allowed to split your pension benefits between two different vested benefits accounts from two different vested benefits foundations. Doing this is advisable because your assets are better protected against bank failures.

Can I invest my vested pension benefits?

If you know that you will be keeping your Swiss pension benefits vested for a very long period of time, then you can consider using an investment solution instead of a vested benefits savings account. Many service providers give you the option of investing your vested benefits in special vested benefits retirement funds, as is also possible with the pillar 3a.

Over long terms, you can potentially earn much higher returns than you could with a vested benefits savings account. But over shorter terms, in particular, the risk of losing money is also higher. Investment solutions are not suitable for parking pension fund benefits for short periods of time because the value of your assets fluctuates.

Can I open more than one vested benefits account?

You can ask your former employer’s pension fund to divide your benefits between two different vested benefits accounts. There are a number of good reasons for doing this. On the one hand, when you divide your benefits between two different vested benefits foundations, they are privileged up to 100,000 per foundation in the event of bank failures. On the other hand, having two accounts lets you cash out your benefits in two different tax years when the time comes, which reduces the taxes you have to pay on withdrawals.

When can I withdraw my money from a vested benefits account?

Pension fund benefits are primarily meant to be used to fund your retirement. Normally, you can cash out a vested benefits account up to five years before or up to five years after you reach the legal retirement age. But there are some situations in which you can withdraw benefits early if certain requirements are met. The rules are similar to those for early withdrawals of pillar 3a assets.

Important: Many vested benefits account offers have additional, incidental fees that apply to different kinds of early withdrawals.

How are vested benefits accounts taxed?

Pension fund benefits held in a vested benefits account do not count towards your taxable wealth. Interest earned on these benefits does not count towards your taxable income.

As with an occupational pension fund, your benefits are only taxed when you withdraw them. How much tax you have to pay depends on which canton and municipality you live in. Exception: If you live outside of Switzerland when you withdraw your benefits, your benefits are subjected to a Swiss withholding tax in the canton where the vested benefits foundation is domiciled.

From a tax perspective, it normally makes sense to use two vested benefits accounts, and to cash the two of them out in two different tax years. If you also use the pillar 3a to save for retirement, you should coordinate vested benefits withdrawals and pillar 3a withdrawals.

More on this topic:
Compare Swiss vested benefits accounts now
Swiss occupational pension funds explained