Vested Benefits Accounts: Choosing the Right Account

What to pay attention to when choosing a vested benefits account:

1. Compare interest rates

Comparing Swiss vested benefits accounts using the unbiased vested benefits account comparison on moneyland.ch will help you get a clear picture of the differences in interest paid out by different banks.

2. Understand vested benefits accounts

A vested benefits account is similar to an escrow account. The account balance is held in trust by a vested benefits foundation. You can only withdraw money from the account when very specific conditions are met. You can and must open vested benefits accounts to transfer your pillar 2 occupational pension fund benefits into when you become unemployed. There are other exceptional situations in which you may be required to open vested benefits accounts, such as during a divorce. You can transfer vested benefits from one vested benefits account (or other vested benefits solution) to another at any time. However, if you want to withdraw, you have to cash out your account in full in almost every case (no partial withdrawals).

3. Understand taxation of vested benefits

A one-time capital withdrawal tax is levied when your vested benefits are paid out. This also applies when benefits are withdrawn ahead of reaching retirement age (see points 9, 10 and 11). If you do not live in Switzerland when you withdraw our vested benefits, a Swiss withholding tax is deducted from your benefits before they are paid out. You can claim a tax refund if the country you live in has a double taxation agreement with Switzerland. The withholding tax is levied by the canton in which the vested benefits foundation which holds your benefits is domiciled. Withholding taxes vary between cantons, so the amount of withholding tax deducted depends on which vested benefits account you have.

4. Review vested benefits account costs

Vested benefits accounts normally do not have monthly or annual account fees. However, a handful of accounts managed by some vested benefits foundations do have recurring account fees. Various fees may apply when you withdraw assets – depending on the vested benefits foundation and account you use and on the circumstances under which your pillar 2 assets are withdrawn. For example, possible fees may apply when you cash out your vested benefits after becoming self-employed, when you withdraw vested benefits to buy a home, when you cash out your vested benefits when leaving Switzerland or when you switch to another vested benefits foundation. Compare the fees and charges attached of different accounts to find the account that suits your individual situation. You can find fees and charges in the vested benefits account comparison.

5. Know the limitations on vested benefits accounts

You can open up to 2 vested benefits accounts (or other solutions) every time you become eligible to vest benefits. These accounts have to be at 2 different vested benefits foundations. Having multiple accounts is beneficial because you can cash them out in different tax years to avoid being bumped into a high tax bracket.

6. Understand standard withdrawal requirements

You can cash out your vested benefits as early as 5 years ahead of legal retirement age and as late as 5 years after you reach legal retirement age. Men can withdraw vested benefits between the ages of 60 and 70, and women can withdraw assets between the ages of 59 and 69. Vested benefits can be withdrawn earlier under certain circumstances (see point 6).

7. Withdrawing benefits when leaving Switzerland

Withdrawal when leaving Switzerland: If you leave Switzerland and take up residence in a country which is not a European Free Trade Association (EFTA) or European Union (EU) member, you can withdraw your vested benefit in full regardless of your age. If you move to an EU or EFTA member country the compulsory portion of your pillar 2 assets must remain in a Swiss vested benefits account, but you can withdraw vested benefits resulting from possible voluntary contributions to occupational pension funds.

8. Withdrawing vested benefits to buy a home

You can withdraw vested benefits for the purpose of buying a primary residence (in Switzerland or abroad), regardless of your age. You can withdraw benefits to use towards down payments, mortgage amortization, or renovation. You can also use benefits to purchase shares in cooperative housing.

9. Withdrawing vested benefits if you become self-employed

You can withdraw your benefits if you become self-employed and are registered as such at the social security office. This applies no matter how old you are.

10. Minimize the costs of vested benefits withdrawals

Various costs may apply when you withdraw your assets, depending on the account and foundation used. These are clearly shown in the vested benefits account comparison. Avoid vested benefits accounts which have high fees and charges for withdrawals and transfers.

11. Vested benefits accounts vs. life insurance

Bank account vs. insurance policy: In addition to vested benefits accounts at Swiss banks, insurance providers also offer vested benefits life insurance policies. Unlike vested benefits accounts, vested benefits insurance policies provide various types of insurance coverage (disability insurance or survivors insurance, for example). However, it is important that you review the exact benefits offered and contemplate whether or not you need the coverage before taking out this type of policy. Interest paid on vested benefits invested in a life insurance policy is minimal.

12. Vested benefits accounts vs. investment solutions

Another alternative to regular vested benefits accounts is presented by vested benefits investment accounts. Accounts must meet pillar 2 retirement saving (BVG) requirements. Note that while placing your pension fund savings into this type of account can potentially deliver higher returns, there is also a risk of loss.

13. Conclusion

When choosing a vested benefits account, the most important things to consider are: the interest earned over the full savings term until withdrawal (you can use the compound interest calculator to calculate this); the total costs of maintaining, withdrawing from, and closing an account; the taxes applicable when assets are withdrawn.

More on this topic:
Compare Swiss vested benefits accounts now