Which situation applies to you?
deVere Switzerland in conjunction with the deVere Group offices worldwide, provides expert guidance on all aspects of understanding and optimising your Swiss pensions, whether you are based in Switzerland or anywhere around the world.

Our International Financial Consultants can assist with:

• transferring your pensions into a more tax efficient Canton
• managing how they are invested
• active fund management (so you can receive the best possible returns)
• any other Swiss Pension related queries.

1. The Swiss Three-Pillar Pension System

   The Swiss Pension system consists of three pillars namely, state, occupational and private pensions.

   

   1. Pillar 1

      The purpose of the first pillar is to provide some financial security for old age, in case of disability and following death. This secures the livelihood of all people living and working in Switzerland. (AHV/DI) is old age survivors’ insurance, disability insurance, and (EL) supplementary benefits under loss of income insurance. This would constitute social security or national insurance payments that employers would deduct from your salary.

   2. Pillar 2

      Pillar two of the Swiss pension system consists of occupational benefits insurance (BVG) aka a pension fund, occupational accident insurance and daily sickness benefits. This supplements the Pillar one AHV/DI and ensures that people can maintain the standard of living that they are accustomed to during retirement. Like Pillar one, it forms part of mandatory pension insurance.

      Any employee with income above the annual salary subject to AHV contributions is covered by the pension fund chosen by their employer. This is a beneficial pension to have as the employer contributes at least the same amount that the employee does and could build a significant pension pot. The value of the pension will be transferred by the employer to the new employer if jobs are changed.

      Contributions are made into a vested benefits account and is only payable when retirement age is reached.Pillar two pensions consists of 2 parts.

      2a is a mandatory company pension whilst 2b a non-mandatory pension. Annual salaries up to a certain amount are subject to mandatory pension contributions of 2a. Many affluent professionals earning above the maximum amount could contribute to a pillar 2b plan. (often known as ‘senior management plan’)

      1. Withdrawals from your Pillar 2 pension

         Pillar 2b funds can be withdrawn if moving to another EU/EFTA country.

         If moving outside the EU, all funds in a pillar two account (2a and 2b) can be withdrawn.

   3. Pillar 3

      This is a voluntary contribution in addition to pillars one and two. Currently, benefits from pillars one and two will more than likely not be sufficient to maintain the standard of living during retirement that people are accustomed to. Because of this, many professionals choose a private pension to avoid any surprises at retirement. A pillar 3 pension allows you to save on tax and can also insure risks such as death or occupational disability.

      This third pillar has two parts, a tax efficient pillar 3a (BVV3) that is a tied pension provision and can be deducted from taxable income, and 3b (VVG) which is a flexible pension provision and only subject to tax privileges under certain conditions.

      1. Pillar 3a

         This is a long-term pension provision. The capital is tied to provide private retirement funds and is often part of a financial product such as life insurance, pension accounts or pension custody accounts.

      2. Tax benefits

         Contributions to pillar 3a tied pension can be deducted from taxable income up to a specified amount. Earnings on the pension are exempt from tax for the duration of the term and advance lump sum payments are taxed at reduced rates. Also, any accrued capital is not subject to wealth tax.

      3. Withdrawals from your Pillar 3 pension

         This can only be done from 5 years preceding retirement age (65 for men and 64 for women), and it can also be deferred to 70 where contributions can continue to be deducted. However, upon leaving Switzerland, the Pillar 3 pension may be withdrawn similar to the Pillar 2 withdrawal process.

2. What happens to your pension when you leave Switzerland?

   When you leave Switzerland, your accumulated pension is moved into a vested benefits account until claimed at retirement. The funds in this account are not invested and earn very little in the way of interest. In 2021, the interest rate on pensions transferred to a vested benefits policy at the Swiss Substitute Benefits Foundation is 0.01%. (10CHF per 100,000CHF invested!) Banks holding vested benefit policies are now charging monthly maintenance charges on these accounts.

3. Cantons and Taxation

   Switzerland is divided into 26 cantons and as such, each canton controls their own taxation rates. The tax paid by an expat cashing in their pension is determined by the canton in which the pension is held. Most professionals tend to work in the higher tax cantons of Zurich, Basel, and Geneva.

4. Why transfer?

   When a Swiss pension is paid out to a person living outside Switzerland, it is taxed based on the location/Canton of the Pension Plan, usually the higher tax Cantons of Zurich, Basel, Geneva, or Vaud. However, you have the right to transfer it to a newly established pension account in a lower tax Canton such as Canton Schwyz, and then transfer it out from there at a much-reduced tax rate.

   Transferring your Swiss Pension allows you to control where your funds are invested. You decide on the kind of returns you wish to receive.

   You will be taxed on your pension regardless of what route you follow, but the purpose of a pension transfer is to save on tax and increase your options in managing and investing your pension.

5. Benefits
   • Access your Swiss pension now instead of at retirement
   • You have a say as to where your funds are invested for maximum growth
   • Tax saving
   • Greater control over access and drawdown that is suited to your personal circumstances
   • Greater control over potentially complex Swiss Inheritance rules, depending on your family circumstances

   (*Note that if you live in an EU/EEA country, the mandatory part of your 2nd Pillar pension (known as the BVG part) must remain in Switzerland until you reach at least 59(F)/60(M) years of age. However, this part can be put into a managed investment strategy for you or withdrawn towards the purchase/financing of your home abroad).

   It is always recommended that you consult with a Financial Adviser to determine what is the best option for your financial circumstances and also to guide you through the pension transfer process. For a complimentary consultation on your options, please complete the ‘Contact us’ section here.