Vested benefits are money that you are entitled to if you leave a pension fund before it pays out benefits for you. The vested benefits are also known as termination benefits or vested benefits money.
The vested benefits are defined in the Vested Benefits Act (“Federal Act on Vested Benefits in Occupational Old Age, Survivors’ and Disability Pension Provision”). Since 1985, the Vested Benefits Act (FZG) has ensured the full vesting of accrued retirement benefits in the entire area of occupational benefits when you leave an occupational benefits institution. All pension funds must comply with this law. The vested benefits are the capital you receive in the event of a “vested benefits case”. This is when you leave your pension fund before a benefit event occurs (retirement, death, disability). Whenever you change your pension fund before retirement, death or disability, this constitutes a vested benefits case.
How high are the vested benefits in the event of vested benefits?
The amount of the vested benefits depends on a comparative calculation. Your pension fund calculates this automatically. In the event of vested benefits, you will receive the largest of the three contributions as vested benefits:
- the statutory minimum amount,
- the BVG retirement assets or
- the vested benefits specified in the pension fund regulations of your pension fund.
The aim of the Vested Benefits Act is to ensure that your pension benefits are maintained even if you change employer or retire before retirement age. Therefore, if you change jobs, your employer must transfer the entire vested benefits (mandatory and non-mandatory portion) to the new employer’s pension fund. You must therefore also tell your previous pension fund where to transfer the termination benefit. If you do not do this or forget to do so, it will transfer your termination benefit to the BVG Substitute Occupational Benefit Institution after 2 years at the latest.
What is a vested benefits account?
If you do not (yet) have a new pension fund, your termination benefit will be transferred to a special account that you designate: the vested benefits account. This is in your name and is managed by a vested benefits foundation, which “parks” the money for you until you have a new employer or reach retirement age and can then withdraw your vested benefits. It is effectively a “blocked pension fund balance”.
What is a vested benefits custody account?
As an alternative to a vested benefits account, you can also pay your money into a vested benefits custody account. You can think of this as a pillar 3a with securities: instead of parking your money in an account, you invest it in securities for a longer period of time. In addition to an FC account, most FC foundations also offer a vested benefits custody account with various investment strategies.
What is the vested benefits policy?
Instead of a vested benefits account or a vested benefits custody account, you can also use your vested benefits to buy a policy with an insurance company. You will then receive an interest rate set by the insurance company on your vested benefits. In addition, the insurance company then mainly insures against death, which means that you receive an additional lump sum if you die. However, large insurance companies (such as AXA, Mobiliar or Zurich) no longer offer vested benefits policies. As a rule, a vested benefits account is the better solution.
Our tip: divide vested benefits into two accounts when leaving the pension fund
When you leave the pension fund, divide your vested benefits into two accounts of approximately equal value. This allows you to save taxes in old age by staggering your withdrawals.
When can I have the vested benefits paid out? How is withdrawal, early withdrawal or partial withdrawal of the vested benefits account possible?
The purpose of the Vested Benefits Act is to maintain your pension protection. Pay out your vested benefits – the foundation can only do this in very few cases:
- you are leaving Switzerland for good and are not subject to compulsory pension provision in the EU/EFTA (if you move to an EU/EFTA country, you can only withdraw the extra-mandatory assets)
- you become self-employed and are not subject to compulsory occupational benefits insurance,
- the amount of your vested benefits is low – it is less than one year’s occupational benefit contribution
- You can also use vested benefits – like money from the pension fund or pillar 3a – to promote home ownership . Both partial withdrawals and withdrawals for the purchase of owner-occupied residential property are possible
- Repaying your mortgage
- Transfer to another 2nd pillar pension fund
- Receipt of a full disability pension
A partial withdrawal from your vested benefits account is only possible for residential property. In other cases, partial withdrawals are not possible and you must close your vested benefits account completely. Early withdrawal from the vested benefits account has tax implications – capital tax is payable.
What is the interest rate on the vested benefits account?
The BVG does contain provisions on the minimum interest rate on retirement assets in pension funds. However, there are no regulations on interest on vested benefits accounts with vested benefits foundations. For this reason, bank and insurance company foundations are very reluctant to pay interest on vested benefits.
Interest rates are generally between 0.0 % and 1.0 % (as at December 2023), which is significantly below the BVG minimum interest rate. This is not only currently the case, but has always been the case in recent years. It is therefore advisable to transfer your vested benefits back to your new employer’s pension fund as soon as possible. This is because you will receive at least the minimum interest rate there.
How secure is the vested benefits account?
Vested benefits foundations are subject to state supervision and are obliged to manage the assets of insured persons separately from their own assets. For this reason, vested benefits are not deposited with the vested benefits foundation, but with a bank. Although in most cases the foundations are set up by a bank and are subject to supervision by the Financial Market Authority, the foundations themselves are not banks. For this reason, vested benefits money is not covered by bank deposit protection.
Pension assets at a bank are considered deposits and are protected up to a maximum of CHF 100,000 per customer in the event of the bank’s bankruptcy. This is “financed” by the banks’ deposit protection. In accordance with Article 37b paragraph 4 of the Banking Act, these assets are privileged in the second class in the event of bankruptcy, irrespective of the other deposits of the individual pension fund member and the individual insured person, up to a maximum amount of CHF 100,000. This is advantageous because in the event of bankruptcy, the available funds are used to service the claims according to the bankruptcy classes, i.e. first the first, then the second and then the third class.
The vast majority of claims are normally in the third bankruptcy class. Assets in excess of CHF 100,000 are not specially protected. As far as possible, they are paid out as bankruptcy dividends as part of the bankruptcy proceedings. This means that your chances of receiving at least the first CHF 100,000 of vested benefits are not bad.
In the event of insolvency of the vested benefits foundation itself, there is no protection, as the LOB Guarantee Fund only protects insured persons in the event of insolvency of pension funds.
Our tip: Reduce bankruptcy risk through diversification
If you have to leave the money with the vested benefits foundation for a longer period of time, you can reduce the risk of the foundation going bankrupt in two ways.
Firstly , instead of saving in an account, you can choose to save in securities, as these are fiduciary assets that are generally not affected by the bankruptcy of a vested benefits foundation.
Or, secondly , you can open an account with two vested benefits foundations on the basis of Article 12 FZV. Give preference to those that hold the vested benefits assets at banks with a state guarantee. These include many cantonal banks, but no longer PostFinance. Or you can combine the two.
Our tip: Keep 3a and vested benefits with different foundations
If you also have a 3a account at the same bank, the privileged amount of CHF 100,000 applies to the vested benefits and 3a account together! Therefore: Do not keep pillar 3a and vested benefits with the same foundation.
If you would like to know more, you can find out more from the Federal Social Insurance Office or read the article on pension fund statements.
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Last update: 01.12.2024 15:47
