Working in Switzerland, even for a short time, can be a strategic way to establish sizeable retirement funds before following your career to another country. While nothing is perfect, Switzerland has one of the best and most progressive pension systems in the world, with workers earning over the minimum threshold enjoying attractive pension contributions from employers, and generous annuity rates.
Building a sizeable retirement pot in Switzerland isn’t necessarily rocket science, but what to do with that money when you leave the country can be, particularly with the confusing amount of options, and opinions masquerading as facts. Here are 5 tried and tested considerations every worker leaving Switzerland should be aware of.
– WHERE ARE YOU MOVING TO? Inside the EU/EFTA; you can only take the over-mandatory part of your money net of capital tax, with the mandatory part (BVG/LPP) staying until normal retirement age. Outside the EU/EFTA; you can take all of your 2nd pillar money, net of capital tax.
– WHERE IS YOUR PENSION LOCATED FOR TAX PURPOSES? The capital tax that you pay when withdrawing money from your 2nd pillar or pillar 3a pension is based on the canton of the pension fund — not the canton of your personal residence. Some cantons have much lower capital taxes on pensions; for example, the tax saving on CHF 500,000 transferring from Basel-Stadt to Schwyz for an unmarried person would be around CHF 14,000. Most Vested Benefit accounts are automatically located in Basel or Zurich (some of the higher tax cantons).
– DO YOU NEED TO ACCESS YOUR MONEY NOW? Just because you can access your pension money when leaving Switzerland, it doesn’t mean you should. Your Swiss pensions — no matter where you move — will help provide you with a post-work income. Think carefully about withdrawing the money today, as you may regret having not saved it when it comes to retirement.
– CHOOSING A VESTED BENEFITS ACCOUNT. When you leave your Swiss employer, your 2nd pillar pension will only stay with their company scheme for a short time before being moved to the Substitute Occupational Benefits Institution (SOBI); a government fund with lower than average growth. The alternative to withdrawing the money is to move your pension to a Vested Benefits account (Freizügigkeitskonto/Libre Passage) — a private pension that grows tax free, with low fees, where you have choice over the investment, but cannot add any more money. For most people this is the best option, as you can withdraw the money any time after leaving Switzerland if needed.
– HAVE YOU PLEDGED ANY OF YOUR 2nd OR 3rd PILLAR PENSIONS TOWARD A PROPERTY PURCHASE? If yes, the mortgage lender by law will be entitled to their share of your pension capital first. Distribution to the lender is the responsibility of the pension fund.
– HAVE YOU MADE ADDITIONAL CONTRIBUTIONS TO YOUR 2nd PILLAR? If you have made voluntary contributions to your 2nd pillar pension in the last 3 years and benefited from a tax deduction, it is important to know that if you withdraw your pension money, the tax authority will recalculate the tax deduction you were given and send you a new bill.
For help managing your Swiss pensions, please contact us for more details.