Vested benefits accounts and pension funds in Switzerland

What is a vested benefits account?

A vested benefits account is an important component of occupational provisions and forms part of the 2nd pillar of the Swiss social security system, the BVG/LPP. A vested benefits account is used if you leave your previous company for any reason without starting a new job straight away. In this case, the law stipulates that your pension fund assets be transferred to a vested benefits solution.

If you do nothing, your last employer’s pension fund will transfer your pension assets to a contingency fund. To avoid this, you should take action yourself and open a vested benefits account or vested benefits custody account with a provider of your choice and park your assets there.

A vested benefits account can be regarded as a kind of parking space where your personal retirement savings are kept until you have a new employer. Your vested pension capital thus remains secure until you have found a new professional challenge.

What is a vested benefits custody account?

In contrast to a vested benefits account, a vested benefits custody account involves investing money in securities. Depending on the vested benefits foundation, you can choose between different investment strategies that correspond to your risk profile and long-term financial goals. This allows you to manage and optimise your pension fund assets according to your personal preferences while you look for a new job or take a career break.

Reasons for a vested benefits account

There are a number of reasons for setting up a vested benefits account. A vested benefits account is used to ensure a seamless transition in the following situations:

- Leaving a company without a new employer
- Unemployment
- Career break
- Parental leave
- Stay abroad
- Further education/training

The vested benefits account or vested benefits custody account is therefore used from the moment when the person is no longer employed and no more pension fund contributions are paid.

Opening a vested benefits account

You are responsible for opening a vested benefits account. If you do not do this yourself, after a certain period your accumulated retirement savings will be automatically deposited with the Stiftung Auffangeinrichtung substitute pension plan, a national employee benefits institution.

A vested benefits account can be opened at a bank or financial institution of your choice. This gives you the freedom to choose a provider that meets your individual needs and expectations. 

It should be noted that different providers may offer different conditions and investment strategies. This may involve aspects such as interest rates, fee structures and investment opportunities. It is therefore advisable to obtain in-depth information in advance, and to arrange a consultation in order to be able to make an informed decision. A consultation can help you choose the vested benefits account that best suits your financial situation, long-term pension goals and pension plans.

When does a vested benefits account or a vested benefits custody account make sense?

A vested benefits account is particularly suitable if your pension plan savings are only to be parked for a short period of time. Typical examples include maternity leave, further training or a brief career break. In such cases, the focus is on a secure interest rate.

A vested benefits custody account, on the other hand, makes sense if your assets are likely to be parked for several years – for example, during an extended stay abroad, self-employment or a major career break. Thanks to the investment opportunities, you have the opportunity to achieve higher returns, but also incur a certain level of risk.

Can I invest my vested benefits in securities?

Yes, this is possible. Investors with a long-term investment horizon may therefore be interested in investing their pension fund assets in a vested benefits account in securities.

The main advantage of this option is a potentially higher return compared to traditional forms of investment. However, this involves an increased risk of market fluctuations. To increase your vested benefits effectively, it is advisable to plan an investment horizon of several years. Equity investments in particular often do not take full effect until after an investment period of several years.

This type of investment requires careful consideration of the risk and return. It is important to find out about the different funds and their risk profiles, and to choose an investment strategy that suits your personal financial goals and risk appetite.

Vested benefits account with a new employer

If you start work again after a career break, you must transfer the savings in your vested benefits account or vested benefits custody account to your new employer’s pension fund. In this case, your vested benefits account/custody account will be closed.

This transfer ensures that your vested pension capital is integrated seamlessly into your new employer’s pension system. This step is key to ensure the continuity of your retirement provisions and to take full advantage of the Swiss three-pillar system.

It should be noted that certain rules and deadlines apply to the transfer of assets from the vested benefits foundation to the new employer’s pension fund. It is therefore advisable to contact your new employer’s pension fund in good time to ensure that everything goes smoothly.

Vested benefits account in the event of death

Following the death of the account holder, the vested benefits will be paid out to certain persons in a specific order. If there are no entitled persons in one group, the entitled persons in the next group will move up. If there are several entitled persons within a group, the capital will be divided equally:

1. The spouse or registered partner comes first, followed by any minor children and children in education who have not yet reached the age of 25.

2. Persons who have received substantial financial support from the account holder; persons who lived in a marriage-like relationship with the account holder up to five years prior to the account holder’s death; persons who must support children from the relationship.

3. Adult children who have completed their education, and the parents and siblings of the deceased come next.

4. If there are no beneficiaries in the aforementioned groups, the assets will be distributed to the other legal heirs in accordance with the certificate of inheritance, excluding the public sector.

Please note: If testamentary instructions have been issued, they will be taken into account to the extent permitted by law.

Conditions for payment

When can I have my vested benefits paid out? As a rule, your vested benefits will remain blocked until you reach the normal reference age. However, there are situations in which you can access your vested benefits in advance. These exceptions are set out in the Federal Vested Benefits Act (VBA) and offer flexibility under certain circumstances:

• Early retirement: You can draw your vested benefits up to five years prior to the normal retirement age.
• Receipt of a full disability pension: If you are receiving a full disability pension, it is possible to draw the accumulated vested benefits early.
• Self-employment: Taking up self-employment as your principal occupation may also justify the early withdrawal of your vested benefits, as you will no longer be subject to mandatory benefits coverage in this case.
  
• Small balance: If your vested benefits are less than your annual personal contribution to the pension fund, they may be paid out. This is often seen as a pragmatic solution for smaller balances.
• Leaving Switzerland permanently: If you leave Switzerland permanently, you can have your vested benefits paid out under certain conditions.
  • Emigration outside the EU/EFTA: You can have both the mandatory and supplementary portions of your pension fund paid out in full. 
  • Emigration to the EU/EFTA: You may only withdraw the supplementary portion. The mandatory portion remains in Switzerland (in a vested benefits account or vested benefits custody account).

• Purchase of owner-occupied residential property: Another reason for the early payout of vested benefits is the purchase of residential property for your own use. This is aimed at encouraging the purchase of owner-occupied residential property. 

Frequently asked questions about vested benefits accounts

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